Large-cap stocks are widely favored among investors for their stability and resilience. These companies, known for their substantial market capitalization, often weather market fluctuations better than smaller counterparts. Historically, large-caps, exemplified by benchmarks like the Standard & Poor’s 500 Index, have delivered solid average annual returns of around 10 percent. For those seeking to avoid the complexities of individual stock selection, Exchange-Traded Funds (ETFs) offer a convenient way to access large-cap stocks.

A large-cap ETF is an exchange-traded fund that focuses on investing in the largest companies in the market, typically those with a market capitalization exceeding $20 billion. These ETFs provide investors with exposure to some of the world’s most successful companies without the need for individual stock analysis or selection.

Large-cap companies within these ETFs range from well-known household names like Amazon, Apple, and Microsoft to lesser-known but still substantial enterprises. The largest large-cap companies can be significantly more valuable than the smallest ones, with large-cap ETFs typically heavily weighted towards these top-tier companies while allocating smaller portions to smaller firms.

Investors favor large-cap companies for several reasons:

  • Strong business fundamentals: Large-cap companies are often among the world’s best businesses, possessing robust competitive advantages.
  • Financial strength: Due to their size and stability, large-caps typically have access to ample cash reserves and can raise capital on favorable terms.
  • Dividend potential: Unlike smaller companies focused on growth, large-caps tend to generate substantial cash flows and frequently distribute earnings to shareholders through dividends.
  • Lower volatility: While all stocks can fluctuate, large-cap stocks generally exhibit less volatility compared to smaller-cap stocks, making them appealing to risk-averse investors.

The Standard & Poor’s 500 Index (S&P 500) is a prominent example of a large-cap index, comprising approximately 500 of the largest publicly traded companies in the United States. This index is highly regarded as it represents some of America’s most prosperous businesses listed on major exchanges.

For investors seeking simplicity and broad exposure to large-cap stocks, investing in a large-cap ETF can be an excellent starting point, especially for those new to investing or looking to simplify their investment management.

Here are the top funds selected based on the following criteria:

  • U.S. funds listed in ETF.com’s screener for large-caps
  • Funds with top performance over the past five years
  • Performance evaluated as of June 28, 2024, using the latest data
  • Excluding inverse or leveraged ETFs

This ETF follows the Nasdaq-100 Index, which includes the 100 largest non-financial companies listed on the Nasdaq.

  • Year-to-date (YTD) performance in 2024: 18.0%
  • Historical performance (annual average over 5 years): 21.7%
  • Expense ratio: 0.20%

This fund follows the Russell Top 200 Growth Index, comprised of the largest U.S. companies expected to grow at an accelerated pace.

  • Year-to-date (YTD) performance in 2024: 23.6%
  • Historical performance (annual average over 5 years): 21.3%
  • Expense ratio: 0.20%

This fund follows the CRSP U.S. Mega Cap Growth Index, composed of the largest growth companies in the United States.

  • Year-to-date (YTD) performance in 2024: 22.4%
  • Historical performance (annual average over 5 years): 20.5%
  • Expense ratio: 0.07%

This ETF mirrors the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, encompassing large and expanding American corporations.

  • Year-to-date (YTD) performance in 2024: 22.7%
  • Historical performance (annual average over 5 years): 20.4%
  • Expense ratio: 0.04%

This ETF focuses on large-cap growth stocks that adhere to specific ESG (environmental, social, and governance) criteria, tracking the TIAA ESG USA Large-Cap Growth Index.

  • Year-to-date (YTD) performance in 2024: 17.5%
  • Historical performance (annual average over 5 years): 19.5%
  • Expense ratio: 0.26%

Vanguard Russell 1000 Growth ETF (VONG)

This ETF focuses on stocks within the Russell 1000 Growth Index, representing a diverse selection of large U.S. growth companies.

  • 2024 Year-to-date (YTD) performance: 21.5%
  • Historical performance (annual average over 5 years): 19.5%
  • Expense ratio: 0.08%

This index ETF tracks the Russell 1000 Growth Index, which comprises large- and mid-cap U.S. growth stocks known for higher valuations, expected medium-term growth, and historical sales growth compared to the broader Russell 1000.

  • 2024 Year-to-date (YTD) performance: 21.4%
  • Historical performance (annual average over 5 years): 19.4%
  • Expense ratio: 0.19%

Large-cap ETFs offer benefits for both novice and experienced investors alike. They provide an opportunity for attractive long-term returns.

While a portfolio of large-cap stocks, such as the S&P 500, has historically averaged around 10% annual returns over extended periods, the actual returns can vary widely. A strong market year might yield returns of 30%, but there are also years where the market may decline by a similar percentage. Therefore, achieving these returns requires a disciplined buy-and-hold strategy.

Large-cap companies, being the largest and most financially stable in the market, tend to experience less volatility compared to small-cap stocks, even the top-performing small-caps. However, during market downturns, this stability might provide some comfort, although large-caps can still face significant declines. Additionally, large-cap stocks often offer higher dividend yields compared to smaller companies.

For investors seeking a balance between growth potential and stability, considering the best mid-cap ETFs could be a prudent strategy.

Investing in large-cap ETFs offers a straightforward approach to accessing the stock market, suitable for investors of all skill levels. They allow investors to gain exposure to this segment of the market without the need for extensive research. However, like any investment, they are not without risk, although these risks generally tend to be lower compared to other types of stocks, such as small- and mid-cap stocks.