The Large Cap Value style ranks fourth out of the twelve fund styles as detailed in my style rankings for ETFs and mutual funds. It gets my Neutral rating, which is based on aggregation of ratings of 39 ETFs and 727 mutual funds in the Large Cap Value style as of October 17, 2012.
From the start, avoid any ETFs below a $100 million market cap. Anything smaller puts you at risk of inadequate liquidity, too large a bid/ask spread and tracking error. Even $100 million can be too low. The bigger the market cap the less trading risk. There are plenty of free services that allow you to screen out the smaller ETFs and minimize your trading risk.
The focus of this article, however, is investing risk or the relative investment potential of the ETF.
There are 36 “large cap value” ETFs. Per Figure 1, these 36 ETFs have drastically different stock holdings and, therefore, allocations. The lowest number of holdings is 30 while the highest is 1178.
How do investors pick the ETF that will deliver the best performance?