IWV: Perhaps A Better Core Equity Allocation Now

It’s been a large-cap world, but there’s more to the stock market than just the Magnificent 7. I’ve never understood why “the market” in most people’s minds doesn’t include all stocks. The iShares Russell 3000 ETF (NYSEARCA:IWV) gets us closer to what the real market should be. And with the potential for small-caps and mid-caps to outperform, IWV makes for a better equity allocation than either SPDR® S&P 500 ETF Trust (SPY) or Invesco QQQ Trust ETF (QQQ) in my view here.

IWV is an exchange-traded fund, or ETF, launched and managed by BlackRock Fund Advisors. The fund’s primary objective is to replicate the investment results of a broad-based index composed of U.S. equities, specifically the Russell 3000 Index.

IWV offers exposure to a wide range of U.S. companies, providing access to around 2700 domestic stocks under a single fund. It is a suitable investment vehicle for those seeking long-term growth in their portfolio. IWV has net assets worth over $11 billion, and a relatively low expense ratio of 0.20%.

Top 5 Holdings in IWV

The downside here is that this remains market-cap weighted, which means it’s still largely driven by the same names that drive the S&P 500 (SP500). These stocks include:

• Apple Inc. (AAPL): A multinational technology company known for its innovative consumer electronics, software, and online services.
• Microsoft Corp (MSFT): A leading global technology firm that develops, licenses, and sells computer software, consumer electronics, personal computers, and related services.
• Amazon.com, Inc. (AMZN): A multinational technology corporation focusing on e-commerce, cloud computing, digital streaming, and artificial intelligence.
• Nvidia Corp. (NVDA): A multinational technology company prominent in designing graphics processing units (GPUs) for the gaming and professional markets.
• Alphabet Inc. Class A (GOOGL): The parent company of Google and several other companies previously owned by Google. It specializes in services related to the internet.

These companies, all from the technology sector, hold a significant weight in IWV’s portfolio, despite the fund’s large number of holdings.

Sector Composition and Weightings

Information & communication technology, healthcare, and financials carry a combined weight of over 50% in IWV’s portfolio.

Peer Comparison

On comparing IWV with its peers, it has the highest expense ratio of 0.20%. Other similar ETFs such as SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM), iShares Core S&P Total U.S. Stock Market ETF (ITOT), Vanguard Total Stock Market ETF (VTI), Schwab U.S. Broad Market ETF (SCHB), and Vanguard Russell 3000 ETF (VTHR) all have an expense ratio under 0.10%. Not a huge difference but does matter over time.

Pros and Cons of Investing in IWV

Investing in IWV comes with its own set of advantages and disadvantages.

Pros:

1. Diversification: IWV provides broad exposure to U.S. companies, covering almost the entire U.S. equity market. This diversification helps mitigate the risk associated with investing in a single company or sector.
2. Strong and Steady Price Growth: IWV has historically shown strong and steady price growth, matching the returns of the S&P 500 index over the years.
3. Lower Expense Ratio: Despite being a passive fund with a low turnover ratio, IWV has a relatively low expense ratio of 0.20%.

Cons:

1. Higher Fees: Compared to its peers, IWV has the highest expense ratio, which could impact the overall returns for investors.
2. Underperformance: IWV has underperformed compared to other similar ETFs, particularly over the past 10 years due to small-cap exposure.

Conclusion: To Invest or Not to Invest

The iShares Russell 3000 ETF (IWV) presents a solid investment option for those seeking broad exposure to the U.S. equity market. Its strong diversification, steady price growth, and lower expense ratio are attractive features for potential investors. However, its higher fees and underperformance compared to its peers are factors to be considered. I’d prefer this longer-term to get exposure to more than just large-cap stocks.

Markets aren’t as efficient as conventional wisdom would have you believe. Gaps often appear between market signals and investor reactions that help give an indication of whether we are in a “risk-on” or “risk-off” environment.

The Lead-Lag Report can give you an edge in reading the market so you can make asset allocation decisions based on award winning research. I’ll give you the signals–it’s up to you to decide whether to go on offense (i.e., add exposure to risky assets such as stocks when risk is “on”) or play defense (i.e., lean toward more conservative assets such as bonds/cash when risk is “off”).