1,000 Stocks Please

XOMInvestors that like low-cost, broad market ETFs with astounding amounts of stocks are sure to love the iShares Russell 1000 Index Fund (NYSE: IWB), a fund that offers exposure to approximately 1,000 of the largest companies in the Russell 3000 Index. To be precise, IWB, which recently celebrated its twelfth birthday, is home 979 of the Russell 3000’s largest components.

 

Predictably, IWB’s roster reads like a who’s who of American blue chip companies. Nine of the ETF’s top-10 holdings are members of the Dow Jones Industrial Average with Apple (NASDAQ: AAPL) the outlier. Apple, the world’s largest company by market value, is also IWB’s largest holding with a weight of 3.86%. Exxon Mobil (NYSE: XOM), the largest U.S. oil company, is the only other IWB holding to receive an allocation north of 1.75%. Exxon accounts for 3% of IWB’s weight.

 

As is par for the course with broader market funds, IWB’s weight is fairly evenly distributed at the sector level. Six sectors – technology, financial services, consumer discretionary, health care, consumer durables and energy – receive double-digit allocations. With a weight of just 4.3%, materials names are the least-represented group in IWB.

 

In many regards, IWB is epitome of what the ETF industry was looking to become in its infancy: A low-cost alternative to mutual funds and before more commodities, emerging markets and more obscure funds, ETF sponsors sought to challenge mutual fund firms with cheap, boring passively managed index funds such as IWB.

 

Whether or not IWB is boring is a matter of one’s personal preference, but there’s no denying the fund is cheap. An expense ratio of 0.15% makes this is an ideal ETF for retirement accounts and long-term investors. The emphasis on large- and mega-caps only adds to the fund’s conservative posture. Not to mention IWB’s beta of 1.04 is barely higher than the S&P 500’s beta.

 

There are some surprises in terms of valuation, however. IWB’s price/earnings ratio is 19.25 and the weighted average book value of its components is just over four. By comparison, the iShares Russell 3000 Growth Index Fund (NYSE: IWZ) isn’t much more expensive 20.8 times earnings and 5.8 times book value.

 

Investors should remember that at its core, IWB is the S&P 500 with another 500 stocks thrown in the mix and what that means is the ETF almost moves in lockstep with the broader market. Over the past decade, IWB has outperformed the S&P 500 by more than 500 basis points, but over the past year, year-to-date and other narrower time horizons, the performances are much closer.

 

At the end of the day, IWB is cheap, easy to understand and a decent performer over the long haul. For many investors, that’s all they need. 

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