The secret is out! After 6 years of smaller company dominance in the U.S., "large caps" may be proving to be the better value.

Year-to-date through the close of market 5/1/07, the Spider S&P 500 index (SPY) has gained about 5.2% to the iShares Russell 2000 Index (IWM) 4.1%. But there’s more.

Since the May-June gloom correction of 2006, the Spider S&P 500 index (SPY) has gained nearly 22.8% off the absolute bottom. In contrast, the iShares Russell 2000 Index (IWM) picked up approximately 22.4%.

Granted, showing data from absolute bottom to absolute peak is not indicative of annualized gains. Nor is there a definitive knockout for the mega-companies over the small fries. In actuality, David has beaten Goliath every calendar year of this decade!

Nevertheless, after years of speculation, a genuine trend towards larger companies may be coming to fruition. In a "maturing bull" market, some investors perceive large caps as more rewarding relative to the risk.

How, then, might one choose to capitalize on the trend towards large-caps? Carl Delfield on Seeking Alpha has argued against using the Dow Jones Industrial Diamond ETF (DIA) due to the narrow focus on U.S. industrial companies. He proposes a more global path with mega-ETFs like the Rydex Russell Top 50 (XLG) and the iShares S&P 500 Global 100 Index (IOO).

I agree with Carl in theory and… in fact… some of my clients do hold positions in XLG and IOO. However, the low volume of these particular ETFs my make them less desirable for those investors who cherish trailing stop orders. And the performance of XLG on the year hasn’t been quite as enticing as some of the alternatives.

For those who want a bit of volume in their large company ETFs… Vanguard’s Large Cap ETF (VV) may be a worthy contender. And, of course, let’s not forget the preeminent SPDR, the S&P 500 Index (SPY).

Year-to-Date (Through 5/1)

Rydex Russell Top 50 (XLG) 2.9%
SPDRs Dow Jones Global Titans (DGT) 3.2%
SPDRs S&P 500 Index (SPY) 5.2%
Vanguard Large Cap ETF (VV) 5.5%
iShares S&P 500 Global 100 Index (IOO) 5.8%

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.

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