Investors seeking to build out a core position for their portfolio may turn to a cheap, passive index-based ETF to gain diversified market exposure with a single investment vehicle.
For example, the the Schwab 1000 Index ETF (NYSEArca: SCHK), which has a dirt cheap 0.05% expense ratio, tries to reflect the performance of the Schwab 1000 Index, which was launched back in 1991. The Schwab 1000 Index provides exposure to America’s largest 1,000 stocks, a collection of large- and mid-cap companies representing 90% of the entire U.S. equity market. The index also acts as the underlying benchmark for the Schwab 1000 Index Fund (SNXFX). The index has outperformed the S&P 500 on an annualized basis since its inception.
“I launched the Schwab 1000 Index, and the mutual fund based on it, in 1991 to give investors a simple, low-cost way to track the growth of a broad group of America’s largest companies and participate in their growth potential. Now, the Schwab 1000 exchange-traded-fund (ETF) is available,” Charles R. Schwab, Founder and Chairman of Charles Schwab, said in a note.
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Schwab explained how he built the Schwab 1000 Index with a deep understanding of how our stock markets progress over time and ample confidence in the outcome, without relying upon back-testing or hypothetical data. The Index’s own performance over time would leave its own track record.
“I was also confident in our new index because it was designed to track what was going on in a part of our economy where we find many of our most successful businesses: the 1000 largest publicly traded U.S. corporations. The Schwab 1000 Index cast a larger net than the smaller S&P 500® Index or Dow Jones Indexes and would capture a larger collection of dynamic, emerging, growing companies,” Schwab said.
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Due to its larger portfolio, SCHK includes a larger tilt toward mid-sized companies. Specifically, the ETF shows a 49.9% tilt toward mega-caps, 32.3% large-caps and 17.7% mid-caps, with a 0.1% position in small-caps. On the other hand, the S&P 500 has 56.3% mega-caps, 35.1% large-caps, 8.6% mid-caps and no small-cap exposure.
“The Schwab 1000 Index represents the 1000 largest companies in America each year. Every year we eliminate from the Index those companies whose value drops them below that threshold and replace them with companies whose value takes them over it,” Schwab said.
For more information on large-cap stock ETFs, visit our large-cap category.