A Cheap, Large-Cap Fund to Put on Your Watchlist
With its size-meets-value approach, this large-cap fund could be a suitable core holding.
Alex Bryan: Unlike most ETFs, iShares Enhanced US Large-Cap does not track an index--rather it applies a rules-based investment approach to target stocks with value, quality, and smaller-cap characteristics. It may seem odd that a large-cap fund would introduce a small-cap tilt. By itself, size has not been a great factor and, theoretically, adding a small-cap tilt to a large-cap fund should have an even smaller impact than overweighting small-cap stocks directly. But the value premium has historically worked the best among smaller-cap stocks; therefore, combining size with value is a reasonable approach.
Putting quality and value together is also a prudent approach because it may help the fund reduce its exposure to value traps, which are stocks that look cheap but may become cheaper. It may also help the fund avoid overpaying for quality.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.