Large-cap exchange traded funds (ETFs) make up the core of many investor portfolios. These companies are, by and large, household names. They’re major corporations that do business around the world. What can they do for you and your clients? Read on.
What Are Large-Caps?
Stocks worthy of the large-cap status usually have market capitalizations exceeding $10 billion, with a long, stable operating history and a copious amount of cash readily available, which also makes large-caps less risky than their small- and mid-cap counterparts.
Different index providers define large-cap stocks differently. For instance, the S&P considers companies with market capitalizations of $4 billion or more as “large cap,” while Dow simply includes the top 750 largest corporations in its Dow Jones Wilshire U.S. Large-Cap Index.
Large-cap companies are also multinational companies that have branched out to different countries, generating additional revenue and earnings from overseas ventures. This aspect provides investors some geographic diversification. McDonald’s (NYSE: MCD) is a recent example: despite depressed consumer spending levels in the United States, McDonald’s has been able to maintain sales growth through its presence in emerging markets.
The most widely-followed benchmark is the S&P 500, an index that follows the 500 largest publicly-traded U.S. companies. ETFs track this benchmark index, along with other prominent domestic and international indexes. Investors tend to follow the S&P or the Dow Jones Industrial Average for a sense of how large-caps are faring.
The Benefits of Large-Caps