Glimpses of EQUITY INDEX ETFs in the Wonderland of USA Stock Market

When you buy a ‘Stock’ you’re investing in a single Company but when you buy an ETF (Exchange Traded Fund) you’re buying a whole collection (Basket) of different Stocks / Bonds. ETFs can be traded like Stocks at any time during market hours at displayed market price while units of Mutual Funds get transacted at the E.O.D. NAV price.

In India, we have 2 broad equity indices i.e., Sensex – 30 Stocks (BSE) and Nifty – 50 stocks (NSE) and many more however, on the other hand in USA the following are prominent Equity Indices (there are many other indices) in which one can invest via ETF, as the various Stocks comprising the ‘index’ are bundled together in the ETF. This is the simplest way of taking exposure in US Stock market in a passive manner. Though there are many more “Indexes” I have covered only certain popular and prominent to have a look.

(1) Name of the Index > NYSE FANG + INDEX. ETN (Ticker Symbol) thru which one can invest > “FNGS” AND {3X Leveraged Version = FNGU} Brief Description > The Micro Sectors FANG+ exchange-traded notes aim to track an index of so-called FANG stocks, meaning Facebook, Amazon, Apple, Netflix, and Google-parent Alphabet Inc. The fund offers highly concentrated exposure those five “core” companies, plus another five technology growth stocks, including Alibaba, Baidu, NVIDIA, Tesla and Twitter. Nearby variant of the index is ‘BULZ’.

(2) Name of the Index > Dow Jones Industrial Average Index Dow 30. ETF (Ticker Symbol) thru which one can invest > “DIA” AND {3X Leveraged Version = UDOW} Brief Description > This ETF tracks the Dow Jones Industrial Average, one of the most famous benchmarks in the world and one that tracks some of America’s largest companies. As a result, investors should think of this as a play on mega and large cap stocks in the American market. These securities are usually known as ‘Blue Chips’ and are some of the most famous and profitable companies in the country, including well-known names such as ExxonMobil, Caterpillar, IBM, and GE. The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy. However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Overall, DIA is a decent choice for investors seeking broad mega and large cap exposure, but it is less diversified than most, containing just 30 securities in total.

(3) Name of the Index > NASDAQ 100 Index. ETF (Ticker Symbol) thru which one can invest > “QQQ” AND {3X Leveraged Version = TQQQ} Brief Description > This ETF offers exposure to one of the world’s most widely-followed equity benchmarks, the NASDAQ, and has become one of the most popular exchange-traded products. The significant average daily trading volumes reflect that QQQ is widely used as a trading vehicle, and less as a component of a balanced long-term strategy. Of course, this fund can certainly be useful as part of a buy-and-hold approach for investors looking to maintain a tilt towards the potentially volatile tech sector. The composition of QQQ is certainly unique; this fund maintains a hefty allocation to technology companies, resulting in potentially significant volatility through heightened exposure to a sector that has historically experienced both impressive rallies and devastating busts. Moreover, the relative concentration (only 100 names) may be less than ideal–especially considering that a small handful of stocks make up a material chunk of the portfolio. QQQ is used primarily by short-term traders, as evidenced by the high average daily turnover. QQQ has penny-wide spreads and can be a nice tool for those looking to quickly establish a position in U.S. equity markets (though SPY accomplishes similar objectives). But investors building a retirement portfolio or maintaining a longer-term objective would be better served to look elsewhere for a fund that achieves better balance across various sectors of the economy. It should be noted that QQQ is cost efficient; the expense ratio is one of the lowest in the industry. Other more expensive alternatives offer similar exposure, including an equal-weighted version of the same underlying index (QQEW) and a version that focuses only on the non-technology components of the NASDAQ (QQXT). Nearby variants of the index are ‘QQQA’, ‘QTEC’, ‘QQQM’, ‘QQQJ’, ‘QQEW’, ‘QQQE’, ‘QQQN’, ‘QQXT’, ‘QYLD’, ‘QYLG’.

(4) Name of the Index > S & P 100 Index. ETF (Ticker Symbol) thru which one can invest > “OEF” Brief Description > This ETFtracks the 100 securities in the S&P 100 Index, a benchmark of some of America’s largest companies. As a result, investors should think of this as a concentrated play on mega cap stocks in the American market. These securities are usually known as ‘Blue Chips’ and are some of the most famous and profitable companies in the country, including well-known names such as ExxonMobil, Apple, IBM, and GE. The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy. However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Overall, OEFis a decent choice for investors seeking broad mega cap exposure but most would probably be better served by investing in a broader fund that is a little more diversified, although OEF is better than most in the mega cap space. Nearby variant of the index is ‘EQWL’.

(5) Name of the Index > S & P 400 Index. ETF (Ticker Symbol) thru which one can invest > “IJH” AND {3X Leveraged Version = MIDU} ThisETFis one of several ETFs available that offers exposure to mid-cap U.S. stocks, an asset class that can make up a significant portion of long-term, buy-and-hold portfolios. As such, this ETF may be more appealing to those in the portfolio construction process as opposed to short term traders. IJH offers exposure to a balanced portfolio of stocks, including close to 400 individual names and spreading exposure relatively evenly. Nearby variants of the index are ‘NUMG’, ‘IVOG’, ‘MDYG’, ‘NUMV’, ‘IVOV’, ‘MDYV’, ‘XMMO’, ‘XMLV’, ‘XMHQ’, ‘EWMC’.

(6) Name of the Index > S & P 500 Index. ETF (Ticker Symbol) thru which one can invest > “VOO” / “SPY” AND {3X Leveraged Version = UPRO} Brief Description > This ETF tracks the S&P 500 Index, one of the most famous benchmarks in the world and one that tracks some of America’s largest companies. As a result, investors should think of this as a play on mega and large cap stocks in the American market. These securities are usually known as ‘Blue Chips’ and are some of the most famous and profitable companies in the country, including well-known names such as ExxonMobil, Apple, IBM, and GE. The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy. However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Overall, VOO is a quality choice for investors seeking broad mega and large cap exposure and it is more diversified than most, containing just over 500 securities in total. As a result, this fund could serve as a building block for many portfolios making it an excellent choice for many buys and holders, especially for those looking to keep costs at a minimum. Nearby variants of the index are ‘VOOG’, ‘SPYG’, ‘VOOV’, ‘SPYV’, ‘IVE’, ‘RSP”, ‘SPLV’, ‘SPMV’, ‘SPHQ’.

(7) Name of the Index > S & P 600 Index. ETF (Ticker Symbol) thru which one can invest > “SLY” AND {3X Leveraged Version = SAA} SLYseeks to replicate a benchmark which offers exposure to small cap firms in the U.S. equity market. The investment thesis behind small caps is that these firms are likely to provide strong growth prospects to a portfolio and should have a much easier time growing then their large cap counterparts. However, these securities are extremely volatile and can experience large losses or gains in a very short period of time. Despite their volatility, these products should probably be in every investor’s portfolio as they tend to move somewhat independently of large caps and can be a better ‘pure play’ on the American economy. This particular ETF, since it focuses on both value and growth securities, could provide more of a diversified play than products that just focus on ‘growth’ or ‘value’ securities within this segment. Thanks to this broad focus, SLYhas a large number of securities— close to 600 in total— and does a great job of dividing up assets among the components as no one company makes up more than 90 basis points of total assets. Thanks to this high level of diversification and SLY’s low expense ratio, the fund could make for a quality addition to portfolios of investors who are looking for small cap exposure and do not have a preference in terms of value or growth equities. Nearby variants of the index are ‘SLYG’, ‘VIOG’, ‘SLYV’, ‘VIOV’, ‘XSMO’, ‘SMLV’, ‘SMMV’, ‘EWSC’.

(8) Name of the Index > NASDAQ Composite Index. ETF (Ticker Symbol) thru which one can invest > “ONEQ”. Brief Description > This Fidelity ETF offers exposure to the broad-based NASDAQ Composite Index. ONEQ is tilted heavily towards U.S. equities, but also includes some international exposure. It should be noted that the sector allocation is skewed heavily towards technology, and as such might not make sense as the exclusive source of U.S. equity exposure; broad-based funds that spread exposure across all sectors such as VTI or SCHB may be more useful for those seeking balanced exposure to the U.S. economy through a single ticker. ONEQ is cost efficient and the depth of exposure is impressive, but investors should note the heavy tech sector bias; ONEQ may be a nice complementary holding or a way to overweight technology in a portfolio.

(9) Name of the Index > Russell 1000 Index. ETF (Ticker Symbol) thru which one can invest > “VONE” AND {2X Leveraged Version = FBGX-Which is ETN, of the ‘Growth’ version of the index ETF > VONG} (Cat.> Large Blend) Brief Description > This ETF tracks the Russell 1000 Index, a benchmark consisting of some of America’s largest companies. As a result, investors should think of this as a play on mega and large cap stocks in the American market. These securities are usually known as ‘Blue Chips’ and are some of the most famous and profitable companies in the country, including well-known names such as ExxonMobil, Apple, IBM, and GE. The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy. However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Overall, VONE is a quality choice for investors seeking broad mega and large cap exposure and it is more diversified than most, containing just under 1,000 securities in total. As a result, this fund could serve as a building block for many portfolios making it an excellent choice for many buy and holders, especially for those seeking to keep costs to an absolute minimum. The other two ETFs following similar benchmark are VONG (Cat.> Large Growth) and VONV (Cat. > Large Value). Nearby variants of the index are ‘VONG’, ‘VONV’, ‘EQAL’.

(10) Name of the Index > Russell 2000 Index. ETF (Ticker Symbol) thru which one can invest > “VTWO” (Cat. > Small Blend) AND {3X Leveraged Version = URTY} Brief Description > VTWO seeks to replicate a benchmark which offers exposure to small cap firms in the U.S. equity market. The investment thesis behind small caps is that these firms are likely to provide strong growth prospects to a portfolio and should have a much easier time growing then their large cap counterparts. However, these securities are extremely volatile and can experience large losses or gains in a very short period of time. Despite their volatility, these products should probably be in every investor’s portfolio as they tend to move somewhat independently of large caps and can be a better ‘pure play’ on the American economy. This particular ETF, since it focuses on both value and growth securities, could provide more of a diversified play than products that just focus on ‘growth’ or ‘value’ securities within this segment. Thanks to this broad focus, VTWO has an extremely large number of securities– close to 2,000 in total– and does a great job of dividing up assets among the components as no one company makes up more than 40 basis points of total assets. Thanks to this high level of diversification and VTWO’s low expense ratio, the fund could make for a quality addition to portfolios of investors who are looking for small cap exposure and do not have a preference in terms of value or growth equities. The other two ETFs following similar benchmark are VTWG (Cat.> Small Growth) and VTWV (Cat. > Small Value).

(11) Name of the Index > Russell 3000 Index. ETF (Ticker Symbol) thru which one can invest > “VTHR”. Brief Description > This ETF seeks to replicate the Russell 3000 Index, and as such includes exposure to companies of all different sizes and classified in all sectors of the U.S. economy. With nearly 3,000 individual holdings, few ETFs offer exposure to more individual securities. VTHR, like many All-Cap Equities ETFs, is an appealing option for investors looking to capture low cost, broad exposure to equity markets and maintain a simplified portfolio; those seeking to fine tune sector or size exposure may want to consider more targeted funds. This fund can be useful both as a core component of a long-term portfolio or as a means of establishing quick exposure to risky assets as part of a shorter-term strategy. Those using VTHR as part of a long-term strategy should note that while companies of all sizes are included, there is a heavy tilt towards large cap stocks; those seeking balanced exposure to small and mid-caps may need to use additional funds. VTHR is a blunt asset allocation tool, offering an impressive degree of diversification and an extremely cost-efficient fee structure. The option to trade commission free in Vanguard accounts may further increase the appeal to cost conscious investors, and the unique attributes of Vanguard products may make this ETF a better choice than IWV.

(12) Name of the Index > S & P Completion Index. ETF (Ticker Symbol) thru which one can invest > “VXF”. Brief Description > This ETF is one of several ETFs available that offers exposure to mid-cap U.S. stocks, an asset class that can make up a significant portion of long-term, buy-and-hold portfolios. As such, this ETF may be more appealing to those in the portfolio construction process as opposed to short term traders. While most funds in this Category focus exclusively on mid-caps, this fund also includes small caps as well making it an interesting choice for investors seeking exposure to both market cap levels in a single ticker. VXF offers exposure to a balanced portfolio of stocks, including more than 1,000 individual securities and spreading exposure relatively evenly suggesting that fund is extremely diversified. The expense ratio is among the cheapest in the category making it an excellent choice for those looking to keep costs to an absolute minimum. For those seeking other options in the space that provide exposure only to mid-caps, MDY and IJH could make for good choices as well as the ultra-cheap FMM, and equal-weighted EWRM. However, for those seeking both mid and small caps in a single product, VXF is tough to beat.

(13) Name of the Index > S & P Composite 1500 Index. ETF (Ticker Symbol) thru which one can invest > “SPTM”. Brief Description > The SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM) tracks the S&P Composite 1500 Index, which offers broad exposure to the U.S. equity market. SPTM invests in more than a thousand different companies across all sectors and sizes, making SPTM an appealing option for investors looking to simplify their portfolios and minimize rebalancing obligations. SPTM can easily serve as the core holding of a long-term portfolio. As with all of State Street’s SPDR “Portfolio” line up, SPTM competes on price with ultra-low-cost funds like the Vanguard Total Stock Market ETF (VTI), the Schwab U.S. Broad Market ETF (SCHB) and the iShares Core S&P Total U.S. Stock Market ETF (ITOT). All four funds charge the same barely-there management fee. The funds have broadly similar allocations when it comes to sector and market-cap, though investors should note that SPTM leans more heavily on large-cap stocks than the other three. Those seeking more exposure to smaller U.S. companies may want to use SPTM alongside small-cap funds. SPTM is also a relative latecomer to the low-cost market and lags its main rivals in assets, but still offers plenty of liquidity. State Street launched its ultra-low-cost SPDR Portfolio line up in October 2017 after years of losing market share to cheaper rivals at BlackRock, Schwab, and Vanguard. This was a humiliating setback since State Street pretty much founded the modern ETF market in 1993 with the launch of the SPDR S&P 500 ETF Trust (SPY). State Street was late to the ultra-low-cost space — BlackRock launched its low-cost iShares Core series five years earlier — but has pushed hard to make up ground. Many of its “Portfolio” funds, including SPTM, were renamed and repriced for this purpose. Prior to October 2017, SPTM tracked the Russell 3000 index and traded under the ticker THRK. Prior to January 24, 2020, it tracked the SSgA Total Stock Market Index.

(14) Name of the Index > S & P Total U S Market Index. ETF (Ticker Symbol) thru which one can invest > “ITOT”. Brief Description > This ETF gives investors an option for achieving low-cost exposure to a broad basket of domestic stocks; the underlying index essentially is created by combining the S&P 500 with popular small cap (600 stocks) and mid cap (400 stocks) indexes as well. As such, ITOT can be a one stop shop for domestic equity exposure, including equities across a number of different sectors and companies of various sizes as well. Relative to other broad-based funds such as IWV and SCHB, this ETF may have a heavier tilt towards large cap companies, making it appealing for investors looking for an equity profile tilted towards the larger companies in an economy. ITOT may be an efficient tool for investors looking for a certain type of U.S. equity exposure, but be advised that there are cheaper options available (such as SCHB, VTI and FMU).

(15) Name of the Index > CRSP U S Total Market Index. ETF (Ticker Symbol) thru which one can invest > “VTI”. Brief Description > This ETF offers broad exposure to the U.S. equity market, investing in thousands of different securities across all sectors. That makes VTI an appealing option for investors looking to simplify their portfolios and minimize rebalancing obligations, as this fund can serve as a core holding of a long-term portfolio. VTI can potentially be useful as a tool for establishing quick exposure to risky assets, though most shorter-term traders with that objective will gravitate towards products such as SPY instead. One of the most attractive aspects of VTI, in addition to the extremely broad base of holdings and balance of exposure, is the price. This ETF is one of the cheapest products available, and the ability to trade commission free within a Vanguard account further increases the appeal to cost-conscious investors. For those looking to minimize fees, VTI will fit right into a portfolio. One attribute worth noting, however, is the tilt towards large caps. While VTI includes companies of all sizes, the allocations to mid-caps and small caps are not significant. Those seeking more balanced exposure to U.S. equities may want to use VTI alongside more targeted products focusing on smaller companies.

(16) Name of the Index > FTSE Global All Cap Index. ETF (Ticker Symbol) thru which one can invest > “VT”. Brief Description >This ETF is one of the broadest equity products on the market, offering exposure to global equity markets, including the U.S., ex-U.S. developed markets, and emerging economies. As such, VT can potentially be a one stop shop for equity exposure to those building a long-term portfolio, though the balance between the three asset classes mentioned above may require some fine tuning based on return objectives and risk tolerances. It should also be noted that VT is dominated by large cap stocks, and maintains minimal exposure to small cap companies; as such, those building a long-term portfolio may wish to seek out complementary holdings for rounding out exposure. With thousands of individual securities in dozens of different countries, VT scores well in terms of diversification; no one stock accounts for a meaningful portion of the total portfolio, and the fund is balanced from both a regional and sector perspective. Like most Vanguard ETFs, VT compares favourably from a cost perspective, and the option to trade commission free in Vanguard accounts further increases the appeal to cost conscious investors. While this fund was designed for buy-and-holders, it has the potential to be used as a shorter-term “risk on” vehicle for establishing broad-based, global equity exposure. Other ETF options for similar exposure include ACWI, while investors seeking ex-U.S. exposure may prefer ACWX or VEU

Compiled & Written By…. Prakash P. Joshi

Vile Parle (East), Mumbai – 400057, INDIA.

Ex Banker, Financial Consultant & Freelance Educator.

E-Mail: – ppjoshi49@gmail.com & Cell No. +91- 9920334762