RSP Leads US Large Cap Blend Equities

02/14/2011 Share 0 comments

ETFs are becoming ubiquitous and there are increasing numbers that "do the same thing." ETFs are much more accessible to the general public and with increasing numbers of brokers offering low or no commission trades provided they are held for a month or more, it may be hard to know which ETF to select.

MyPlanIQ has recently completed a major review of all the leading ETFs in the US Equities asset class and we are going to dig a little deeper to determine which ETFs would provide the highest returns. We start with the large cap blend ETFs.

The first thing to note is that none of the large cap blend ETFs come in the top ten list of the US equity ETFs. RSP is 19th, VTI is 26th and SPY is 30th.

The second thing to note is that RSP has a clear win against VTI and SPY. There is a great deal of debate about whether equal weight equities make sense but, in pure returns terms, they clearly perform better.

 We observe that RSP has more volatility and does better in good times and worse in bad times. We also observe that VTI and SPY have similar performance characteristics.

When we go back to performance of all ETF's in the US asset class we note that the top ten comprises four small cap, five mid cap and one large cap ETFs.

Being equally weighted means that the smaller companies (albeit in the large cap class) have a larger percentage of the portfolio in RSP than in VTI and SPY. Therefore, it leans more towards mid cap behaviors.

In times of financial stress, the larger caps are going to be preferred which would favor SPY and VTI but when things are recovering, the smaller company leaning RSP is going win out and that is what happens.

When it comes to expenses, RSP is the most expensive to own. Their cost is 0.4% whereas Vanguard is 0.07% and Spyder is 0.0945%. This makes RSP a relatively expensive ETF to own but the returns are there as the returns reported are net of management fees.

If your investment strategy is to fire and forget then maintaining some large cap equities is going to be important to get through future financial heavy weather that will come sooner or later -- RSP and VTI.

If you are going to have regular reviews and be willing to move from mid cap to large cap, then RSP is a reasonable hedge but you might decide to leave out large cap blend subclass all together for now.

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Tags, ETFs, US Equity, Portfolio Construction