In Part One, I discussed how heavily weighted the S&P 500's top stocks are and how, in reality, the bottom 200 stocks in the index don't even matter. Now I would like to talk about potentially better options than buying an S&P 500 index Exchange Traded Fund or mutual fund but still being diversified in a large number of stocks, with a wide range of diversity and having a good chance of beating the S&P 500's returns.
The biggest issue with the S&P 500 is that the top stocks carry all the weighting. The bottom stocks don't mean much. Instead of buying the SPDR S&P 500 ETF Trust (SPY), why not purchase something that doesn't hold as many positions and have all the assets focused on just the top companies. This way, when the bigger companies that mean more anyways move, you have more money in them. And since the larger companies are typically less volatile, your portfolio shouldn't have to worry about as many companies going bankrupt or falling apart as someone who owns the S&P 500 would have to be concerned with.
The first ETF I would like to discuss is the Invesco S&P 500 Top 50 ETF (XLG). The XLG is an ETF that tracks a market-cap-weighted index of the 50 largest US companies. In essence, it holds just the top 50 of the 500 companies that make up the S&P 500. The fund has a weighted average market cap of $668 billion and a yield of 1.34%. XLG also has an expense ratio of 0.2% and $1.65 billion in assets under management. XLG is up 19.19% year-to-date and more than 35% over the past 12 months. On an annualized basis, the fund is up more than 16% over the last 10 years, a figure that easily beats the market average of a little under 10%. Lastly, the funds top ten holdings represent more than 51% of the fund with Apple (AAPL) taking the top spot at 12.69% of the assets. Continue reading "This Is Why You Are Losing To The S&P 500 - Part 2"