Large-cap stocks are one of the most popular ways to invest in the market. These companies have the deepest pockets, and their businesses are more resilient than a typical small-cap. So large-caps have been a great way to invest, with the bellwether Standard & Poor’s 500 index delivering average annual returns of about 10 percent over time. If you don’t want the hassle of investing in individual stocks, you can gain exposure to large-cap stocks through an ETF.
What is a large-cap ETF?
A large-cap ETF is an exchange-traded fund that invests in the market’s largest companies, the companies where the total value of all the company’s stock is more than $20 billion. Large-caps ETFs are a great way to own some of the world’s most successful companies without having to do the work of analyzing individual companies and picking the winners.
Large-caps range from some under-the-radar picks to the household names that everyone knows, such as Amazon, Apple and Microsoft. So, the biggest large-cap companies may be as much as 100 times more valuable than the smallest. Large-cap ETFs are typically most concentrated in the largest companies, with smaller companies allocated much tinier stakes.
Large-cap companies tend to be popular with investors for several reasons:
- World’s best businesses: Large-caps are some of the world’s best businesses, and they have some of the strongest competitive advantages in the world.
- Deep financial resources: As a result of their strong business, large-caps typically have access to their own cash and can often raise money on favorable terms.
- Cash cows: In contrast to small-caps, large-caps tend to grow less quickly, but they tend to be cash cows, often returning much of their earnings to shareholders through dividends.
- Less volatility: Sure, stocks tend to fluctuate a lot, but large-caps tend to be less volatile than their small-cap cousins, making them a bit better for risk-averse investors.
One of the most well-known collections of large-caps is the Standard & Poor’s 500 index, which includes about 500 of America’s largest companies. The S&P 500 is a key index, because it includes the most prosperous American companies trading on the exchanges.
Those are great advantages for investors, but if you have little knowledge of investing or simply don’t want to manage your own investments, a great place to begin is buying a large-cap ETF.
Top-performing large-cap ETFs
Bankrate selected these top funds based on the following criteria:
- U.S. funds that appear in ETF.com’s screener for large-caps
- Funds among the top performers over the last five years
- Performance measured on Dec. 31, 2024, using the most recent figures
- No inverse or leveraged ETFs
iShares Russell Top 200 Growth ETF (IWY)
This fund tracks the Russell Top 200 Growth index, which includes America’s largest companies that are expected to grow at an above-trend pace.
- 2024 performance: 36.0 percent
- Historical performance (annual over 5 years): 20.6 percent
- Expense ratio: 0.20 percent
Invesco QQQ Trust (QQQ)
This ETF tracks the Nasdaq-100 Index, a collection of the 100 largest non-financial companies trading on the Nasdaq.
- 2024 performance: 26.7 percent
- Historical performance (annual over 5 years): 20.2 percent
- Expense ratio: 0.20 percent
Schwab U.S. Large-Cap Growth ETF (SCHG)
This ETF tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market index, which includes large and growing American companies.
- 2024 performance: 36.3 percent
- Historical performance (annual over 5 years): 20.0 percent
- Expense ratio: 0.04 percent
Vanguard Mega Cap Growth ETF (MGK)
This fund tracks the CRSP U.S. Mega Cap Growth index, which includes the largest growth companies in the U.S.
- 2024 performance: 34.2 percent
- Historical performance (annual over 5 years): 19.7 percent
- Expense ratio: 0.07 percent
Vanguard Russell 1000 Growth ETF (VONG)
This ETF invests in stocks in the Russell 1000 Growth index, a broadly diversified group of large U.S. growth companies.
- 2024 performance: 34.4 percent
- Historical performance (annual over 5 years): 19.2 percent
- Expense ratio: 0.08 percent
iShares Russell 1000 Growth ETF (IWF)
This index ETF track the Russell 1000 Growth index, which includes large- and mid-cap U.S. growth stocks that have higher valuations, higher expected medium-term growth and higher historical sales growth, compared to the rest of the Russell 1000.
- 2024 performance: 34.3 percent
- Historical performance (annual over 5 years): 19.0 percent
- Expense ratio: 0.19 percent
Nuveen ESG Large-Cap Growth ETF (NULG)
This ETF invests in large-cap growth stocks that meet certain ESG (environmental, social and governance) criteria, and tracks the TIAA ESG USA Large-Cap Growth index.
- 2024 performance: 24.8 percent
- Historical performance (annual over 5 years): 19.0 percent
- Expense ratio: 0.26 percent
Are large-cap ETFs a good investment?
Large-cap ETFs are a good place for beginners, but they can also be a great option for advanced investors, too. With a large-cap ETF, you can earn attractive long-term returns.
While a portfolio of large-cap stocks such as the S&P 500 has generated returns of about 10 percent annually over long periods, returns are much lumpier than that. A great year for the market would be a 30 percent return, but sometimes the market may fall that much in a year, too. So if you want to earn the level of returns offered by large-caps, it’s vital to buy and hold.
As noted above, large-caps consist of the market’s largest, most financially stable companies. That status tends to make them fluctuate somewhat less than small-cap stocks, even the best small-caps. But during rough years, that may seem like cold comfort, because they can still drop significantly. Another benefit: Large-caps tend to pay more dividends than their smaller rivals.
If you’re looking for growth and stability, you can split the difference between large-caps and small-caps by focusing on the best mid-cap ETFs.
Bottom line
Large-cap ETFs can be a great way to invest in the stock market, regardless of your skill level, and they can help investors buy that segment of the market without having to do extensive research on their investment. But like any kind of investment, they don’t come without risk, even if those risks tend to be lower than for other types of stocks, such as small- and mid-cap stocks.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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