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Large Cap ETFs
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About Large Cap ETFs |
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Large Capital ETFs Overview and forecast
Large cCpital ETFs are ETFs which invest in companies with large capitalization. The basis of this strategy is that the big highly capitalized companies constitute a separate class and are behaviorally different from corporations with lower capitalization. This sounds rather simple, but it's a complex behavioral pattern. It is quite true that the big capital companies, both as traditional investments and as stock market traders are a separate class of investment. Large Capital ETFs are based on equaling or bettering that performance.
Usually, it's a reasonably safe bet, unless one of the assets goes sour, or weighting is put out by a downgrade, that the large caps will behave well. Perhaps more importantly, they also behave more predictably than the wilder speculative stocks and fad stocks. Both short and long positions are generally within the bounds of basic models for the Large Capital ETFs.
Which is why, when the wheels fell off the market, that even the relatively strait laced Large Capital ETFs had a bumpy ride. They invest across a highly diverse set of indices, and the collective effect was pretty mixed. Some Large Capital ETFs are even still showing a good positive return for the 12 month period including the crash. One of them even managed consistent positive returns for the whole period.
To explain this apparent anomaly, the Large Capital ETFs invest in quite unrelated indices. Some invest in things like Asian large capital companies. Others invest in things like LSE middle capital companies. This lack of similarity leads to quite different performances over time. It's fair to say that these ETFs are at home in bull markets, and some were very strong, even in the worst of the crash.
A case in point is iShares Morningstar Large Core Index (JKD). This very aptly named ETF has a list of holdings which at first glance appears to be based on household names. Formed in mid 2004, iShares Morningstar Large Core Index ETF was around for the heart of the bull market, and grew respectably, up to the time of the crash. It was hit in more or less the same profile as the rest of the ETFs, but as it went down from the last quarter of 2008, its trading picked up enormously. It did a very sharp double take, rising steeply in the current second quarter of 2009. Traders have obviously taken a liking to it. Despite the crash, the ETF has remained in positive territory throughout the Great Recession, to date.
Short term (6 months)
It's not alone in that respect. The Large Capital ETFs generally have been reborn as trading material. Vanguard Large Capital ETF (VV) has performed differently in terms of returns, but much the same as a trader. The short term of the recent past has shown a lot of interest in the Large Capital ETFs, and a brief look at a few charts will show that since the last quarter of 2008 they've been being becoming much more effective as short term traders.
This is in marked contrast to their early incarnation as funds, where their progression was good, but not dynamic. Their trade was slow, and their volumes relatively feeble. That's important, because the Large Capital ETFs all relate to major index component stocks. Their popularity is no accident. It reflects a new investment choice which is obviously reacting to a highly volatile market by taking a secondary position. Traders seem to be lapping up these ETFs enthusiastically. The short term is looking very positive for the Large Capital ETFs.
Medium term (2 years)
One of the obvious options for the Large Capital ETFs is to capitalize on this new interest themselves. Their performance as traders is an incentive to investors, and more investment does mean better returns for the ETFs themselves. The Large Capital ETFs have some claim to being the definitive version of spread investments, and the possibilities for splits and options in the Large Capital ETFs is quite real. It could be an excellent move, assuming the baselines are OK.
The great potential strength of the Large Capital ETFs is their marketability to Main Street investors. As a class, the Large Capital ETFs are also real, credible, threats to the mutuals. The mutuals haven't done too well under the hammer of the crash, and the Large Capital ETFs are direct competition. Investors might get dazzled and confused by the various exotic ETFs, but the Large Capital ETFs are very easy to understand as investment concepts. Their similarity as traders to stocks is also another selling point for the Large Capital ETFs. In the medium term, the Large Capital ETFs would be missing a lot of shots if they didn't capitalize (excuse pun) on their appeal.
Long term (5 years)
The Large Capital ETFs have another advantage. They don't have to follow their indices around like lost sheep. Some of the strategy outlined for the medium term would pay off very well in the long term. By ETF standards, these are relatively large asset ETFs. Capital growth could make them a lot bigger, very quickly. Their market exposure would increase, and so would their reach to investors.
Some of these ETFs are behaving like real money makers, with interesting weightings and some positions which look like a genuine effort to be bullet proof. That acts as a notable reassurance to investors these days, and as a strategy, it seems to have worked well in taking the sting out of major hits to their assets on the market. Even the relatively small, innocuous Large Capital ETFs have managed to stage respectable recoveries. Performance is highly variable, but as a general rule, the Large Capital ETFs have held their ground reasonably well. The long term could be their golden age, if they can consolidate their positions as both traders and investments in the long term.
Qualifiers to projections
The Large Capital ETFs are actually strong investment options, but the question of comparative performance has to be addressed. Some of them aren't very competitive with the others. That will not impress traders, and certainly won't impress large capital investors. Survival Of The Fittest is likely to be the major force in this class of ETF.
Some Large Capital ETFs could turn predatory. It's a logical move, and it would also acquire some interesting positions in terms of holdings and spreads. It's not beyond conception that Large Capital ETFs could turn into monsters, a whole new type of institutional investor, with major private investors at the helm. If they do, large capital corporations will face a new and very different regime, with professional expert investors as big holders.
That kind of management could be an end to the Age of Corporate Freeloaders we've all come to respect and admire so much recently. Large Capital ETFs could well be a prototype of an entirely new approach to investment and corporate ownership, and much more pro investor oriented policies. Investors can be assured that the future for the Large Capital ETFs will be truly fascinating.
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Last Updated on: 2010-01-14 02:03:40 |
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