1,000 Stocks...Almost

Published on Wednesday, 29 February 2012 20:43 Written by Todd Shriber

New York, February 29^th (TradersHuddle.com) – Sometimes, ETFs have a small amount of stocks, say 20 or 30, but some ETFs feature massive amounts of stocks and that’s the case often with those funds that track major U.S. indexes such as the Russell 2000 or the S&P 500. A large number of stocks is definitely what you’ll find with the iShares Russell 1000 Index Fund (NYSE: IWB). The iShares Russell 1000 Index Fund actually holds 982 stocks, not 1,000, but let’s not quibble over 18 stocks.

The index tracked by IWB represents the approximately 1,000 largest companies in the Russell 3000 Index and basically what that means is the ETF gives investors exposure to the S&P 500 plus another 500 stocks, give or take a few. This also means that it’s large-caps and mid-caps that really dominate IWB’s lineup. As such IWB’s top-10 holdings read like a who’s who of large-cap U.S. stocks. Apple (NASDAQ: AAPL) is the ETF’s largest component with a weight of 3.49%. The other nine members of IWB’s top-10 lineup are all members of the Dow Jones Industrial Average and the top-10 account for less than 18% of IWB’s weight.

With the S&P 500 comprising about half of its weight, it’s no surprise that IWB and the SPDR S&P 500 (NYSE: SPY) don’t offer much divergence. The IWB’s beta is barely higher, and year-to-date the ETF has outperformed SPY by a sliver. However, the margin is so slim that investors should consider the fact that IWB has an expense ratio of 0.15%, which is cheap, while the SPY’s fees are just over 0.09%.

The sector breakdown for IWB isn’t going to provide much in the way of surprises either. Technology and financials lead the way at just over 17% and 16%, respectively. Consumer discretionary names are next with a weight of 13.3% while energy, producer durables and health care stocks all receive allocations in excess of 11%. Consumer staples, utilities, and materials round out IWB’s sector mix.

Truly the issue with IWB is whether or not the fact that ETF offers moderately more risk than SPY justifies being involved with the former over the long-term. As we said, year-to-date IWB is barely ahead. Over the past year, two years and five years, there’s almost no difference between the two funds. However, if you took a look all the way back to May 200 when the IWB made its debut, it would show that the IWB slightly wins the battle.

Overall, IWB is a fine idea for the conservative investors that like the idea of exposure to a broad swath of U.S. stocks with the potential to beat the S&P 500 slightly without incurring substantial risk.