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The base of most investors' equity portfolios is (and probably should be
— for psychological/behavioural reasons)
domestic large-cap funds. There are several very similar investment options
available. Which is best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Invesco S&P 500 Momentum Portfolio ETF (SPMO).
E/R: 0.13%. This fund tracks the S&P 500 Momentum Index of
large-cap stocks which have been exhibiting strong risk-adjusted
price momentum over the past 12 months (excluding the most recent
month). For more
information on momentum investing, see
here.
|
| iShares MSCI USA Momentum Factor ETF (MTUM). E/R: 0.15%.
This fund tracks the MSCI USA Momentum Index of large- and mid- cap stocks
which have been exhibiting strong risk-adjusted price momentum over
the past 6- and 12- month periods.
For more information on momentum investing, see
here.
|
| Vanguard U.S. Momentum Factor ETF (VFMO). E/R: 0.13%. This ETF
Targets U.S. stocks with strong recent performance. Stocks
are weighed by their momentum score, resulting in a strong exposure to the
momentum factor. The ETF is "actively managed", but it is managed
quantitatively, not speculatively.
For more information on momentum investing, see
here.
|
| AQR Large Cap Momentum Style Fund (AMOMX). E/R: 0.40%.
This fund invests in large/mid cap US momentum stocks (i.e., stocks that have
done well over the past 12 months, excluding the most recent month).
Momentum has been shown to have both a positive risk premium and a negative
correlation with the value premium. Thus, momentum stocks are good
diversifiers to value stocks. As such, this fund is most appropriate
for those who are using it to both get large cap exposure and to diversify
value exposure elsewhere in their portfolio. This fund manages to
lesson short-term capital gain and dividend distributions. For
more information on momentum investing, see
here.
|
| JPMorgan U.S. Momentum Factor ETF (JMOM). E/R:
0.12%. This fund tracks the JPMorgan US Momentum Factor Index of
large-cap stocks which have been exhibiting strong risk-adjusted
price momentum recently. For more
information on momentum investing, see
here.
|
| Fidelity Momentum Factor ETF (FDMO). E/R: 0.29%. This ETF
attempts to track the Fidelity U.S. Momentum Factor Index of US
Large- and Mid- Cap stocks with high momentum over the previous 12
months (excluding the most recent month).
For more information on momentum investing, see
here.
|
| Alpha Architect U.S. Quantitative Momentum ETF (QMOM). E/R: 0.29%.
The Alpha Architect US Quantitative Momentum ETF tracks an equal-weighted
index of US stocks with strong and consistent momentum. QMOM targets
the 10% of stocks with the highest total return over the last 12
months, excluding the most recent month. The fund also screens for
consistency of momentum by excluding stocks with too many
negative-return days during the 12-month period. This methodology
produces a few dozen holdings which get weighted equally. We
don't like that the fund has such a relatively high expense ratio
and relatively few holdings.
For more information on momentum investing, see
here.
|
| SPDR Russell 1000 Momentum Focus ETF (ONEO).
E/R: 0.20%. This ETF attempts to track the Russell 1000
Momentum Focus Index of US Large Cap stocks with high momentum over
the previous 12 months (excluding the most recent month). The
Index also somewhat tilts towards stocks with relatively high value,
smallness, and quality exposure.
For more information on momentum investing, see
here.
|
| Invesco DWA Momentum ETF (PDP).
E/R: 0.62%. This fund tracks the Dorsey Wright Technical
Leaders Index of US stocks that demonstrate powerful relative
strength characteristics. For more
information on momentum investing, see
here.
|
| Vanguard U.S. Quality Factor ETF (VFQY).
E/R: 0.13%. This ETF Targets U.S. stocks with strong
operational, earnings, and balance sheet quality. Stocks with strong
fundamentals have tended to earn a higher return than those with
weak fundamentals. The ETF is "actively managed", but it is managed
quantitatively, not speculatively.
|
| Fidelity ZERO Large Cap Index Fund (FNILX). E/R: 0.00%.
Minimum initial investment: $10,000. Tracks the Fidelity U.S. Large
Cap Index. Obviously, the main attraction here is the extraordinarily
low expense ratio.
|
| DFA US Core Equity Market ETF (DFAU).
E/R: 0.12%. This fund invests in US stocks while emphasizing
those with lower market cap, lower relative price, and higher
profitability. Even though it isn't really "style pure," we
think that, as impure as it may be, it is one of the best (mostly)
large cap US funds for a retirement account.
|
| Vanguard Large-Cap Index Fund Admiral Shares (VLCAX). E/R: 0.05%.
This
fund tracks the obscure CRSP US Large Cap Index.
|
| Vanguard 500 Index Fund Admiral Shares (VFIAX). E/R: 0.04%.
This fund
is one of the largest mutual funds in the world. This, combined with
expert implementation, combines to allow this fund to actually beat its index
occasionally, which is VERY rare for index funds. This is the safe
choice. Its performance against the benchmark has been, and we expect will
continue to be, outstanding. Great diversification — low fees
— this is the standard against which all others are
judged.
|
| DFA US Large Cap Equity Portfolio (DUSQX). E/R: 0.13%.
This fund invests in large/mid cap US profitability stocks (i.e., large cap
stocks of companies that are currently most profitable, compared to
their book value).
It also slightly tilts the portfolio towards small and value stocks. Stocks of profitable companies have been shown to have both a positive risk premium and a negative
correlation with the value premium. Thus, profitability stocks are good
diversifiers to value stocks. As such, this fund is most appropriate
for those who are using it to both get large cap exposure and to diversify
value exposure elsewhere in their portfolio. For more
information on profitability investing, see
here.
|
| DFA US Large Company Portfolio (DFUSX). E/R: 0.08%.
This is an S&P 500 index fund.
|
| DFA Enhanced US Large Company Portfolio (DFELX). E/R: 0.15%.
This fund basically invests in S&P 500 index futures. Implicit in the
price of a futures contract is an assumed interest rate covering the period from
purchase of the contract to the contract expiration date. The futures
themselves are a relatively small portion of the portfolio (enough futures are
bought to simulate full investment in the index). An even smaller
portion of the portfolio is set aside in very short-term treasuries as
collateral. The remaining cash is invested passively in Short-Term bonds using DFA's
"variable maturity" strategy. If the Short-Term bonds can earn a
better risk-adjusted return than the interest rate implicit in the futures
price, it is possible to have better risk-adjusted returns than the index
(before fees). It is
important not to use this fund inside a taxable account —
it is VERY tax-inefficient.
|
| BNY Mellon US Large Cap Core Equity ETF (BKLC).
E/R: 0.00%. This ETF attempts to track the Morningstar US
Large Cap Index of large US companies.
|
| iShares S&P 500 Index Fund Institutional Shares (BSPIX). E/R: 0.10%.
Minimum initial investment = $2M, unless you invest through a fee-only RIA
or a 401(k). This
fund tracks the S&P 500 Index.
|
| Vanguard S&P 500 ETF (VOO).
E/R: 0.03%. This is the ETF share class of the Vanguard 500
Index Fund (VFIAX).
|
| SPDR Portfolio Large Cap ETF (SPLG).
E/R: 0.02%. This ETF attempts to track the SSGA Large Cap
Index of large US companies.
|
| Schwab U.S. Large Cap ETF (SCHX).
E/R: 0.03%. This ETF tracks the Dow Jones U.S. Large-Cap Total
Stock Market Index.
|
| Vanguard Large-Cap ETF (VV).
E/R: 0.04%. This is the ETF share class of the Vanguard
Large-Cap Index Fund (VLACX).
|
| Vanguard Mega Cap 300 ETF (MGC).
E/R: 0.07%. This ETF is a share class of the Vanguard Mega Cap
300 Index Fund Institutional Shares (VMCTX). It attempts to
track the CRSP US Mega Cap Index of very large US companies.
|
| Vanguard Russell 1000 ETF (VONE).
E/R: 0.08%. This ETF is a share class of the Vanguard Russell
1000 Index Fund Institutional Shares (VRNIX). It attempts to
track the Russell 1000 Index of large US companies.
|
| iShares S&P 500 Fund (IVV).
E/R: 0.03%. This is an ETF which tracks the S&P 500 index.
|
| SSgA S&P 500 Index Fund (SVSPX). E/R: 0.16%. This fund
tracks the S&P 500 Index.
|
| Vanguard Large-Cap Index Fund (VLACX). E/R: 0.17%.
This fund tracks the obscure CRSP US Large Cap Index.
|
| EA Bridgeway Blue Chip ETF (BBLU). E/R: 0.15%.
This ETF passively invests in the stocks of ~35 of the largest US companies.
As such, the ETF is dramatically less diversified than the other choices
here. However, since the companies it invests in are among the most
liquid on the planet, internal transaction expenses are very low. The
ETFd equal weights the ~35 stocks, using new money to rebalance. The
equal weighting should lessen the ETF's volatility.
|
| Invesco S&P 500 Top 50 ETF (XLG).
E/R: 0.20%. This is an ETF which tracks the S&P 500 Top 50
Index. While its E/R is higher than many others here, we like
that it is very style-pure (i.e., only large cap stocks — no mid or
small cap) and the fact that its stocks are among the most liquid on
the planet should give it extremely low internal transaction costs.
|
| iShares Russell Top 200 Fund (IWL).
E/R: 0.15%. This is an ETF which tracks the Russell Top 200
index — the largest 200 US stocks. While its E/R is higher
than many others here, we like that it is very style-pure (i.e.,
only large cap stocks — no mid or small cap) and the fact that its
stocks are among the most liquid on the planet should give it
extremely low internal transaction costs.
|
| iShares Russell 1000 Fund (IWB).
E/R: 0.15%. This is an ETF which tracks the Russell 1000 index.
|
| S&P 500 SPDR (SPY). E/R:
0.095%. This is the oldest, largest ETF in the world. On
the plus side, its bid-ask spreads tend to be smaller than those of
other ETFs (because of high demand for shares). On the other
hand, unlike the other ETFs listed here, it is organized as a Unit
Investment Trust. The main problem with this is that, as a
UIT, it is required to hold dividends it receives in a non-interest
account until paid out to investors. This causes a "cash-drag"
on the fund's earnings, as compared with alternatives.
|
| iShares Morningstar U.S. Equity ETF (ILCB).
E/R: 0.03%. This is an ETF which tracks the Morningstar US
Large-Mid Cap Index.
|
| iShares S&P 100 Fund (OEF).
E/R: 0.20%. This is an ETF which tracks the S&P 100 index — a
subset of stocks in the S&P 500 index. We see little reason to
use this fund. It is less diversified and more costly than
most alternatives here.
|
| WisdomTree US Earnings 500 ETF (EPS). E/R: 0.08%.
This is an ETF which tracks the WisdomTree Earnings 500 Index. This
index consists of the 500 largest (by market cap) companies in the WisdomTree
Earnings Index of US companies with positive earnings. The
index weights the 500 companies by the cash value of their earnings.
|
| WisdomTree US LargeCap Dividend ETF (DLN). E/R: 0.28%.
This is an ETF which tracks the WisdomTree LargeCap Dividend Index. This
index consists of the 300 largest (by market cap) companies in the WisdomTree
Dividend Index of regular dividend paying companies. The index
weights the 300 companies by the cash value of their dividend
payouts.
|
| Invesco FTSE RAFI 1000 Portfolio (PRF). E/R: 0.39%.
This is an ETF which tracks the FTSE RAFI 1000, a non-cap weighted index of US
large cap stocks. |
| Invesco S&P 500 Momentum Portfolio ETF (SPMO). E/R:
0.13%. This fund tracks the S&P 500 Momentum Index of large-cap stocks
which have been exhibiting strong risk-adjusted price momentum over the past
12 months (excluding the most recent month). For more
information on momentum investing, see
here.
|
| iShares MSCI USA Momentum Factor ETF (MTUM). E/R: 0.15%.
This fund tracks the MSCI USA Momentum Index of large- and mid- cap stocks
which have been exhibiting strong risk-adjusted price momentum over the past
6- and 12- month periods. For more
information on momentum investing, see
here.
|
| Vanguard U.S. Momentum Factor ETF (VFMO). E/R: 0.13%. This ETF
Targets U.S. stocks with strong recent performance. Stocks
are weighed by their momentum score, resulting in a strong exposure to the
momentum factor. The ETF is "actively managed", but it is managed
quantitatively, not speculatively.
For more information on momentum investing, see
here.
|
| JPMorgan U.S. Momentum Factor ETF (JMOM). E/R:
0.12%. This fund tracks the JPMorgan US Momentum Factor Index of
large-cap stocks which have been exhibiting strong risk-adjusted price
momentum recently. For more
information on momentum investing, see
here.
|
| Fidelity Momentum Factor ETF (FDMO). E/R: 0.29%. This ETF
attempts to track the Fidelity U.S. Momentum Factor Index of US Large- and
Mid- Cap stocks with high momentum over the previous 12 months (excluding
the most recent month).
For more information on momentum investing, see
here.
|
| Alpha Architect U.S. Quantitative Momentum ETF (QMOM). E/R: 0.29%.
The Alpha Architect US Quantitative Momentum ETF tracks an equal-weighted
index of US stocks with strong and consistent momentum. QMOM targets
the 10% of stocks with the highest total return over the last 12 months,
excluding the most recent month. The fund also screens for consistency of
momentum by excluding stocks with too many negative-return days during the
12-month period. This methodology produces a few dozen holdings which get
weighted equally. We don't like that the fund has such a relatively
high expense ratio and relatively few holdings.
For more information on momentum investing, see
here.
|
| AQR Large Cap Momentum Style Fund (AMOMX). E/R: 0.40%.
This fund invests in large/mid cap US momentum stocks (i.e., stocks that have
done well over the past 12 months, excluding the most recent month).
Momentum has been shown to have both a positive risk premium and a negative
correlation with the value premium. Thus, momentum stocks are good
diversifiers to value stocks. As such, this fund is most appropriate
for those who are using it to both get large cap exposure and to diversify
value exposure elsewhere in their portfolio. This fund manages to
lesson short-term capital gain and dividend distributions. For
more information on momentum investing, see
here.
|
| SPDR Russell 1000 Momentum Focus ETF (ONEO). E/R: 0.20%. This ETF attempts to track the
Russell 1000 Momentum Focus Index of US Large Cap stocks with high momentum
over the previous 12 months (excluding the most recent month). The
Index also somewhat tilts towards stocks with relatively high value,
smallness, and quality exposure. For more information on ETFs, see here. For more
information on momentum investing, see
here.
|
| Invesco DWA Momentum ETF (PDP). E/R:
0.62%. This fund tracks the Dorsey Wright Technical Leaders Index of
US stocks that demonstrate powerful relative strength characteristics. For more
information on momentum investing, see
here.
|
| Vanguard U.S. Quality Factor ETF (VFQY). E/R: 0.13%. This ETF
Targets U.S. stocks with strong operational, earnings, and balance sheet
quality. Stocks with strong fundamentals have tended to earn a higher return
than those with weak fundamentals. The ETF is "actively managed", but it is
managed quantitatively, not speculatively.
For more information on momentum investing, see
here.
|
| Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX). E/R:
0.11%. This fund tracks the Russell 1000 index of large-cap stocks while
minimizing both dividend and capital gains distributions.
|
| DFA US Core Equity Market ETF (DFAU).
E/R: 0.12%. This fund invests in US stocks while emphasizing those
with lower market cap, lower relative price, and higher profitability.
Even though it isn't really "style pure," we think that, as impure as it may
be, it is one of the best (mostly) large cap US funds.
|
| Vanguard Large-Cap Index Fund Admiral Shares (VLCAX). E/R: 0.05%.
This
fund tracks the obscure CRSP US Large Cap Index. The fact that there is an ETF associated with this fund should
make it more tax-efficient than it otherwise would be (low basis stocks will
tend to be disposed of via periodic in-kind redemptions of the ETF shares).
In fact, because ETF shares make up a large portion of the money in this fund,
it is likely to be almost as (capital gains) tax efficient as a standard ETF.
|
| SPDR Portfolio Large Cap ETF (SPLG). E/R: 0.02%. This ETF attempts to track the
SSGA Large Cap Index of large US companies.
|
| Schwab U.S. Large Cap ETF (SCHX). E/R: 0.03%.
This ETF tracks the Dow Jones U.S. Large-Cap Total Stock Market Index.
|
| Vanguard Large-Cap ETF (VV). E/R: 0.04%.
This is the ETF share class of the Vanguard Large-Cap Index Fund (VLACX). However, unlike other non-Vanguard ETFs, this fund will be only as tax efficient
as its underlying fund — no more and no less.
We expect VLACX to be extremely capital gains tax efficient for at least the
following reasons:
 | The index it tracks has very little turnover (by design). |
| When there is turnover, it will generally be due to a stock holding
being sold because it has gotten too small in relative market capitalization
— this suggests realization of losses. |
| A large portion of VLACX (almost half) is the ETF shares (VV), which
increases the capital gains tax efficiency of VLACX through its share
redemption process. |
|
| Vanguard 500 Index Fund Admiral Shares (VFIAX). E/R: 0.04%.
This fund
is one of the largest mutual funds in the world. This, combined with
expert implementation, combines to allow this fund to actually beat its index
occasionally, which is VERY rare for index funds. This is the safe
choice. Its performance against the benchmark has been, and will
continue to be, outstanding. Great diversification — low fees
— this is the standard against which all others are
judged.
|
| BNY Mellon US Large Cap Core Equity ETF (BKLC). E/R: 0.00%. This ETF
attempts to track the Morningstar US Large Cap Index of large US companies.
|
| Vanguard Mega Cap 300 ETF (MGC). E/R: 0.07%. This ETF is a
share class of the Vanguard Mega Cap 300 Index Fund Institutional Shares (VMCTX). It attempts to track the
CRSP US Mega Cap Index of very large US companies.
However, unlike other non-Vanguard ETFs, this fund will be only as tax
efficient as its underlying fund — no more and no less.
We expect VMCTX to be extremely capital gains tax efficient for at least the
following reasons:
| The index it tracks has very little turnover (by design). |
| When there is turnover, it will generally be due to a stock holding
being sold because it has gotten too small in relative market capitalization
— this suggests realization of losses. |
| A very large portion of VMCTX is expected to be the ETF shares (MGC), which
increases the capital gains tax efficiency of VMCTX through its share
redemption process. |
|
| Vanguard Russell 1000 ETF (VONE). E/R:
0.08%. This ETF is a share class of the Vanguard Russell 1000 Index
Fund Institutional Shares (VRNIX). It attempts to track the Russell
1000 Index of large US companies. However, unlike other non-Vanguard
ETFs, this fund will be only as tax efficient as its underlying fund — no
more and no less.
|
| Vanguard S&P 500 ETF (VOO). E/R:
0.03%. This is the ETF share class of the Vanguard 500 Index Fund
(VFIAX).
|
| iShares S&P 500 Fund (IVV). E/R:
0.03%. This is an ETF which tracks the S&P 500 index.
|
| EA Bridgeway Blue Chip ETF (BBLU). E/R: 0.15%.
This ETF passively invests in the stocks of ~35 of the largest US companies.
As such, the ETF is dramatically less diversified than the other choices
here. However, since the companies it invests in are among the most
liquid on the planet, internal transaction expenses are very low. The
ETF equal weights the ~35 stocks, using new money to rebalance. The
equal weighting should lessen the ETF's volatility.
|
| Invesco S&P 500 Top 50 ETF (XLG).
E/R: 0.20%. This is an ETF which tracks the S&P 500 Top 50 Index.
While its E/R is higher than many others here, we like that it is very
style-pure (i.e., only large cap stocks — no mid or small cap) and the fact
that its stocks are among the most liquid on the planet should give it
extremely low internal transaction costs.
|
| iShares Russell Top 200 Fund (IWL).
E/R: 0.15%. This is an ETF which tracks the Russell Top 200 index —
the largest 200 US stocks. While its E/R is higher than many others
here, we like that it is very style-pure (i.e., only large cap stocks — no
mid or small cap) and the fact that its stocks are among the most liquid on
the planet should give it extremely low internal transaction costs.
|
| iShares Russell 1000 Fund (IWB). E/R:
0.15%. This is an ETF which tracks the Russell 1000 index.
|
| S&P 500 SPDR (SPY). E/R: 0.095%.
This is the oldest, largest ETF in the world. On the plus side, its
bid-ask spreads tend to be smaller than those of other ETFs (because of high
demand for its shares). On the other hand, unlike the other ETFs
listed here, it is organized as a Unit Investment Trust. The main
problem with this is that, as a UIT, it is required to hold dividends it
receives in a non-interest account until paid out to investors. This
causes a "cash-drag" on the fund's earnings, as compared with alternatives.
|
| iShares Morningstar U.S. Equity ETF (ILCB).
E/R: 0.03%. This is an ETF which tracks the Morningstar US
Large-Mid Cap Index.
|
| iShares S&P 100 Fund (OEF). E/R:
0.20%. This is an ETF which tracks the S&P 100 index — a subset of
stocks in the S&P 500 index. We see little reason to use this fund.
It is less diversified and more costly than most alternatives here.
|
| WisdomTree US Earnings 500 ETF (EPS).
E/R: 0.08%. This is an ETF which tracks the WisdomTree Earnings 500
Index. This index consists of the 500 largest (by market cap)
companies in the WisdomTree Earnings Index of US companies with positive
earnings. The index weights the 500 companies by the cash value of
their earnings.
|
| WisdomTree US LargeCap Dividend ETF (DLN).
E/R: 0.28%. This is an ETF which tracks the WisdomTree LargeCap
Dividend Index. This index consists of the 300 largest (by market cap)
companies in the WisdomTree Dividend Index of regular dividend paying
companies. The index weights the 300 companies by the cash value of
their dividend payouts.
|
| Invesco FTSE RAFI US 1000 ETF (PRF).
E/R: 0.39%. This is an ETF which tracks the FTSE RAFI 1000, a non-cap
weighted index of US large cap stocks. |
This web page contains the current opinions of Eric E. Haas at the time it is
written—and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying—and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
