Unlike other large exchange-traded funds that gauge the US economy, such as the SPY, the Russel 3000 ETF is all-encompassing. It is a funs that cuts across the cap divide, albeit with a skewness towards large and mega-cap equities. The result is a diversified fund across the US economy, exposing investors to 2739 best publicly traded US equities.
Why does it pay to invest in the Vanguard Russel 1000 ETF?
To understand why the Russel 3000 ETF is an earnings solution in 2022, we understand the ins and outs. The Russel 1000 ETF, IWV, is a fund launched on 22nd May 2000, making it the pioneer ETF to track the Russel 3000 index.
This exchange-traded fund pools together, at any given time, between 2700 and 3000, of the largest and best-performing equities in the United States; 1000 of the best large-cap blue-chip companies, and the remaining 2000 a mix of the most liquid and best performing mid and small-cap equities. It tracks the underlying index by investing 80% of its total assets in the holdings of its composite index, including ADRs and investment assets exhibiting a positive correlation to the tracked index. At the discretion of the fund management, 20% of this fund’s assets are invested in futures, swap contracts, cash, options, and cash equivalents.
The composite index screens the largest 4000 US equities and then filters them based on growth potential, market capitalization, dividend growth, liquidity, and other desirable trading requirements, to come up with a basket of the best 3000 stocks spanning both the mega-cap, large-cap, mid-cap, and small-cap categories. In addition, this diversified fund is reconstituted annually, with quarterly rebalancing ensuring it stays true to its investment objective. The result is a fund that offers investors;
- Consistent Returns
- Reduced Risks
The capital outlay needed to invest in 3000 of the best publicly traded companies in the US while buying a single share per organization would be relatively high. In addition, tracking these 3000 equities individually to understand market conditions and their resulting performance would be a nightmare. Fortunately, through the IWV ETF, investors gain access to approximately 3000 of the best US equities under a single investment asset, resulting in instant diversification and a play on the entire US economy – 98% of the US publicly traded companies.
The underlying holdings are equities primarily over the $10 billion market capitalization threshold, providing stability and capital outlay to weather market downturns.
The appeal of exchange-traded funds has always been their relatively lower cost than other investment assets. The ETF market has become so competitive that the only way for brokers and fund sponsors to retain their clientele is to ensure low costs that reflect value for money. As such, some ETFs attract zero trading commissions. For a fund exposing investors to the entire US economy, the IWV ETF has an expense ratio of 0.20%, which is relatively low given the holding base of 3000 equities.
Since its inception in 2000, investors in the IWV ETF have enjoyed average annualized returns to the tune of 9.28%, a $10000 investment at its inception would now be worth $40196 today. Add to this an annual dividend yield of 1.05% and quarterly dividends of $0.81 to the share provide for a fund that allows you to sit back while your investments work for you.
|Period||SPY||Category average||Segment average|
|1 month return||2.03%||1.58%||2.19%|
|3 month return||-5.52%||-9.14%||-5.71%|
|1 year return||12.24%||6.63%||7.40%|
|3 year return||61.25%||39.95%||28.34%|
|5 year return||95.81%||49.78%||32.14%|
A look at the table above shows that not only has IWV ETF provided investors with consistent and significant returns on their investment over the last half a decade, but it has also been outperforming both its category and segment averages.
Except for the first two holdings that account for 10.91% total fund weight, this fund has a fairly even distribution across its 3000 holdings. However, like many large blend funds that track the US economic health, the IWV ETF is skewed towards the tech field, 18.83%, and the financial sector, 16.53%. The result is a fund that mitigates against concentration risk, with a beta of 1.04.
Is there a downside to buying the IWV ETF?
The IWV ETF is simplified to play the entire US equity market. However, investors should know that despite incorporating equities from the small and mid-cap categories, this fund is still heavily skewed towards large and mega-cap stocks. In addition, it is also relatively more expensive than some funds plying their trade in this segment.
With $11.65 billion in assets under management, and a dividend yield of 1.05%, the IWV fund can provide portfolio growth and value. Its holding base of 3000 equities and a pretty even weight distribution provides for a resilient fund with the ability to weather market storms and avoid concentration risk in 2022. In conclusion, its inclusion of small-cap stocks in its holding portfolio places it in pole position to benefit in 2022, given that small-cap stocks historically outperform the markets during economic resurgence.