IVV - BKLC: A Large-Cap Fund That's Free

2024-01-02 12:33:37 ET

Summary

• BNY Mellon US Large Cap Core Equity ETF offers no-cost exposure to the S&P 500 with some filters applied.
• The BKLC ETF holds top holdings such as Apple, Alphabet, Nvidia, Amazon, and Microsoft.
• The ETF is heavily weighted towards the Information Technology sector and has a significant cost advantage over similar ETFs.

Still a fan of the S&P 500 (SP500)? Then why bother paying for it? That's the investment case for the BNY Mellon US Large Cap Core Equity ETF (BKLC). This is a passively managed exchange-traded fund ("ETF"), launched in April 2020 by BNY Mellon. It seeks to replicate the performance of the Morningstar US Large Cap Index, essentially mimicking the S&P 500 with some filters applied. The fund primarily invests in large-cap companies, those with a market capitalization above $10 billion, offering a stable investment option with predictable cash flows.

And it has zero fees.

Key Holdings of the ETF

The fund holds approximately 501 stocks, representing some of the largest companies globally. The top five individual holdings include the ones we all know about, like:

• Apple Inc. (AAPL): A global tech giant that specializes in the design, manufacturing, and marketing of consumer electronics, computer software, and online services,
• Alphabet Inc-CL A (GOOGL): A multinational conglomerate that was formed through the corporate restructuring of Google on October 2, 2015. It became the parent company of Google and various former subsidiaries.
• Nvidia Corporation (NVDA): A US-based tech company headquartered in Santa Clara, California, primarily known for its design of graphics processing units (GPUs) for the gaming and professional sectors, as well as system on chip units (SoCs) for mobile computing and automotive markets.
• Amazon.com, Inc. (AMZN): An American tech conglomerate known for its emphasis on e-commerce, cloud computing, digital streaming, and artificial intelligence.
• Microsoft Corporation (MSFT): A multinational technology company that focuses on the development, manufacturing, licensing, support, and sale of computer software, consumer electronics, personal computers, and associated services.

These top five holdings constitute about 22% of the fund's total assets. However, it's essential to note that this concentration in a few large-cap stocks introduces a certain level of risk.

Sector Composition and Weightings

The BKLC ETF's sector composition is heavily weighted towards the Information Technology sector, which makes up approximately 29.49% of the portfolio. The Healthcare and Financials sectors follow closely, rounding up the top three. This allocation reflects the growing importance of the technology sector in the modern economy.

Peer Comparison

While the BKLC ETF offers a zero-cost structure, it is not the only ETF out there providing such exposure to the S&P 500. Other similar ETFs such as the iShares Core S&P 500 ETF ( IVV ) and the SPDR® S&P 500 ETF Trust ( SPY ) track similar indices. However, these alternatives come with expense ratios of 0.03% and 0.09% respectively. Thus, BKLC's zero-cost structure gives it a significant advantage over its peers in terms of cost efficiency. Interestingly, BKLC has outperformed both IVV and SPY, but this is more likely due to differences in the margin between the S&P 500 index and the Morningstar Large Cap Index.

Note I added for comparison purposes the Fidelity ZERO Large Cap Index Fund (FNILX) which also is a zero-code fund. Main difference? This is a mutual fund, which may not be as tax efficient as the ETF structure BKLC is, combined with the real-time pricing and tradability of the fund.

Pros and Cons of Investing in BKLC ETF

Pros:

1. Zero-Cost Structure : The zero-cost structure is undoubtedly the most attractive feature of the BKLC ETF. It means the investors are not burdened with any expenses or ongoing fees for owning this fund.
2. Large-Cap Exposure : The ETF provides exposure to large-cap stocks, which are generally considered more stable and less volatile than their mid and small-cap counterparts.
3. Diversified Holdings : With 501 holdings, the ETF effectively diversifies company-specific risk.

Cons:

1. Concentration Risk : A significant portion of the fund's assets is concentrated in a few large-cap stocks, which introduces a certain level of risk.
2. Passive Management : As a passively managed fund, the ETF may not be able to take advantage of market inefficiencies.

To Invest or Not to Invest

The BKLC ETF offers a unique opportunity for investors looking for no-cost exposure to large-cap stocks. Its zero-cost structure and diversified holdings make it an attractive option. While passive investing may not suit all investors, those willing to "own the market" and not try to pick individual stock winners may find the BKLC ETF an attractive proposition.

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