Reap Large Cap Benefits With This Low-Cost Active ETF

It’s easy to get caught up in the dogma of passive funds that provide core exposure to large caps. To get more dynamic exposure to the market that extends beyond rigidity, active funds can be of benefit.

When seeking generalized exposure to the broad market, large caps are typically the default option. That’s due to their relative stability and low volatility compared to small- or midcap peers. In the current market environment, that typically means getting exposure to household names belonging to the “Magnificent Seven,” such as Amazon, Apple, or Microsoft.

“Large-cap stocks are one of the most popular ways to invest in the market,” suggested Bankrate. “These companies have the deepest pockets, and their businesses are more resilient than a typical small-cap. So large-caps have been a great way to invest, with the bellwether Standard & Poor’s 500 Index delivering average annual returns of about 10 percent over time. If you don’t want the hassle of investing in individual stocks, you can gain exposure to large-cap stocks through an ETF.”

All that said, investors have options beyond passive exposure to a large cap index.

Deep Diversification at a Low Cost

While getting Magnificent Seven exposure is almost perfunctory for large cap exposure, investors can opt for an exchange-traded fund (ETF) that offers deeper diversification. This is where a fund like the Avantis U.S. Large Cap Equity ETF (AVLC) is advantageous.

First and foremost, the fund is actively managed, eschewing the inflexibility of a passive index. Furthermore, the ETF is managed by experienced portfolio managers who are familiar with the large cap equity market, which can be nuanced beyond simply getting exposure to S&P 500 companies. That said, the fund boasts over 900 holdings, allowing for that aforementioned deep diversification.

While AVLC does offer Magnificent Seven exposure, it’s relegated to under 20% of its holdings (as of February 5). The rest is spread among a variety of companies from various business sectors to capture that diversification even further.

Salient features of AVLC as mentioned on its product website:

  • Pursues the benefits associated with indexing (diversification, low turnover, transparency of exposures), but with the ability to add value by making active investment decisions using the information in current prices.

  • Efficient portfolio management and trading process designed to enhance returns while focusing on reducing unnecessary risks and costs for investors.

  • Built to fit seamlessly into an investor’s asset allocation.

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