Why and How to Index in U.S. Large Caps
Broad diversification and low fees make indexing a good bet in this competitive arena.
The names behind many U.S. large-cap stocks are familiar to investors. Titans of industry like Apple (AAPL), McDonald’s (MCD), and Coca Cola (KO) feature prominently among their ranks and in our everyday lives. They also hold meaningful sway in most investors’ equity allocations, as these firms account for the lion’s share of the total market cap of the U.S. stock market. Depending on the index family in question, they typically account for between 80% and 90% of the U.S. market. In this article, I will look at the case for indexing within U.S. large caps and highlight some of our top-rated funds offering indexed exposure within this segment of the market.
The Case for Indexing U.S. Large Caps
The data shows that U.S. large caps are an area of the market where it is particularly challenging for active managers to add value, making it ripe for indexing. According to Morningstar’s year-end 2019 U.S. Active/Passive Barometer, just 14.3% of actively managed U.S. large-blend Morningstar Category funds outperformed their average passive peer over the 20 years through December 2019. By way of comparison, the equivalent figure for active funds in the U.S. small-blend category was 35.5%.
Venkata Sai Uppaluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.