Market Overview

Broad Market Exposure On The Cheap With This iShares ETF

Broad Market Exposure On The Cheap With This iShares ETF

Hundreds of exchange traded funds offer investors broad market exposure and many do so with nominal fees. Among the least expensive is the iShares Core S&P Total U.S. Stock Market ETF (NYSE: ITOT).

ITOT, which turned 14 in January and tracks the S&P Total Market Index, charges just 0.03 percent per year. That is the equivalent of $3 on a $10,000 investment, making ITOT one of the least expensive ETFs on the market today.

ITOT “is an attractive choice for diversified exposure to U.S. stocks of all sizes and spans the value/growth continuum,” said Morningstar. “The exchange-traded fund efficiently tracks a broadly diversified and representative benchmark at a low cost, which gives it a persistent edge over its peers. It earns a Morningstar analyst rating of Gold.”

What Happened

ITOT holds 3,471 stocks, far more than are found in the S&P 500 or the Russell 1000 Index. Over the past three years, ITOT's returns have been mostly in-line with the S&P 500's while being modestly ahead of the Russell 1000. ITOT's annualized volatility over that span has been comparable to those benchmarks.

ITOT's three-year standard deviation of 10.37 percent is comparable to that of the S&P 500, while ITOT's trailing 12-month dividend yield of 1.75 percent is 10 basis points below the S&P 500's.

Why It's Important

ITOT uses a traditional, market cap-weighted methodology, so its sector weights are comparable to those of other major broad market, cap-weighted benchmarks.

“Market-cap weighting pulls the portfolio toward the largest U.S. stocks and accurately reflects the composition of the market,” said Morningstar. “The fund's average market cap of just under $60 billion is slightly higher than the average fund in the category. The fund is well diversified: It owns nearly 3,500 stocks, and its top 10 holdings represent less than 17 percent of its portfolio.”

Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT) and Inc. (NASDAQ: AMZN) are ITOT's top three holdings.

What's Next

ITOT will benefit if technology stocks continue generating upside, as that sector represents almost 24 percent of the fund's weight. Financials and healthcare combine for over 28 percent.

“Compared with large-cap index-tracking funds, this fund benefits more from weighting by market cap because it owns stocks of all sizes and doesn't have to sell or buy names as they cross arbitrary market-cap size segments,” according to Morningstar. “Lower turnover means lower transaction costs and a smaller likelihood of taxable capital gains distributions. The fund's average turnover during the past decade was 6 percent compared with an average figure of more than 60 percent for its category peers.”

Related Links:

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