The Ins and Outs of Total Market ETFs
January 26th, 2011 at 1:00pm by Tom Lydon
If you’re a newbie investor, you may find total market exchange traded funds (ETFs) an appealing foundation for your portfolio. Let’s explore this asset class.
Total market is the total combination of publicly traded stocks as weighted by capitalization. Total U.S. bond market and foreign equities may also be included in their own total market sets. ETFs use a sampling methodology to follow every security in a total market system.
Why would you want such a fund?
When confronted with total market equities, most wonder if it is possible to beat by investing in sub-indexes, comments Will McClatchy for ETF Zone. Picking out the top-performing sectors, however, is usually tougher to execute than you might think. And if you find that to be so, then total market ETFs could be for you.
People invest in total market ETFs simply because they do not have the training, time or motivation to consistently and constantly pick out sub-indexes. The experts also argue that trying to beat the market brings about higher risks than the potential for rewards.
Total market ETFs are also an appealing option if you simply want a one-stop shop. The number of ETFs that deliver such an all-encompassing strategy has exploded in recent years.
- Vanguard Total Stock Market ETF (AMEX: VTI); annual fees: 0.07%.
- SPDR Dow Jones Wilshire Total Market ETF (NYSEArca: TMW); annual fees: 0.2%.
- iShares Russell 3000 ETF (NYSEArca: IWV); annual fees: 0.2%.
ETFs based on broad indexes include more small-caps; thus, tend to have improved diversification, lower average market cap, higher average growth rates, and higher risk.
International total market ETFs include:
- Vanguard Total World Stock ETF (NYSEArca: VT), annual fees: 0.25%; VT tries to reflect the FTSE All-World Index of about 2,900 stocks in 47 countries, with 44% of holdings in the US.
- SPDR MSCI ACWI ex-US ETF (NYSEArca: CWI); annual fees: 0.35%; CWI tries to reflect the global publicly traded companies outside the US.
- SPDR S&P World ex-US ETF (NYSEArca: GWL); annual fees: 0.35%; GWL is very similar to CWI. This global (except US) total stock ETF has slightly higher average market caps.
Growth vs. Value:
- iShares Russell 3000 Growth ETF (NYSEArca: IWZ), annual fees: 0.25%; IWZ holds 1,800 stocks from the Russell 3000 that have higher projected growth and higher price-to-book ratios.
- iShares Russell 3000 Value ETF (NYSEArca: IWW), annual fees: 0.25%; IWW holds everything that IWZ does not.
- PowerShares Autonomic Balanced NFA Global Asset Portfolio ETF (AMEX: PCA), annual fees: 0.25%; PCA holds PowerShareses, iShares and Vanguard ETFs in a portfolio of 60% stocks and 40% bonds, with a majority of US-based assets.
- Claymore U.S.-1-The Capital Markets ETF (AMEX: UEM), annual fees: 0.55%; UEM is exposed to 2,000 US stocks and fixed income of every type.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.