Advisors who recommend exchange-traded funds should strongly consider telling clients to bulk up on the indexes of large-capitalization stocks, which typically post attractive returns from the most highly efficient parts of the market, experts say.

James J. Bruyette, a CFP and a managing director at Sullivan Bruyette Speros & Blayney in McLean, Va., said that his team uses ETFs in virtually every asset class and also allocates a substantial portion of a typical client’s portfolio into large blue-chip companies.

“They are less volatile than small-caps, they pay higher dividends on average and they have delivered great returns on a risk-adjusted based for decades,” he said.

“ETFs are a great way to get exposure to blue chips, because they are low-cost and tax efficient,” Bruyette said. “We believe they are just a better mousetrap than open-ended mutual funds.”

With the capitalization of the U.S. equity markets at more than $22 trillion, the purchase of an ETF such as one tracking the S&P 500 allows investors to capture almost 80% of the U.S. market with one investment, said Claudia Mott, a CFP and principal at Epona Financial Solutions in Basking Ridge, N.J.

Although using a total U.S. market ETF will broaden a portfolio’s exposure to include small- and mid-cap stocks as well, it is important to bear in mind that smaller market-cap stocks can be more volatile, she said.

“Therefore during market corrections, a broad market index may not perform as well as one focused solely on the more efficient large-cap sector,” Mott said.

Wade Balliet, senior vice president and head of investment advisory and management in Bank of the West’s wealth management group in Denver, said that his team thinks that ETFs can be helpful and work as asset class vehicles.

“Some clients may want limited active management exposure in their portfolio, which make ETFs a great vehicle for pure asset class exposure and low cost,” Balliet said.

In addition, he said that investing in an ETF that tracks a large-cap index can help avoid duplicating other parts of a portfolio.

“An ETF strategy using the S&P 500 Index ensures that overlap is minimal in a client’s portfolio providing pure asset class exposure,” Balliet said.

However, he and his team don’t think that ETFs should use only large-cap stocks.

“We use passive ETF index strategies for asset class coverage and for tax management,” Balliet said.

Katie Kuehner-Hebert is a freelance writer in Running Springs, Calif. She has contributed to American Banker, Risk & Insurance and Human Resource Executive.

This story is part of a 30-30 series on smart ETF strategies

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