Wednesday, February 21, 2007

Comparison of large cap asset class

In december, we looked at different asset classes and evaluated the interesting asset classes for investing. Our bias for investing has always been value. Consequently, in this blog, we have taken a bearish view on stocks such as Google, Ebay, etc.

In this segment, we will look at large cap domestic equities and again look at value, blend and growth segments to see how things look like.

We will look at the ETFs offered by Vanguard and iShares respectively. First iShares ETFs. iShares offers several ETFs in the large cap domestic equity class but we will look at three ETFs in particular.

The three ETFs of interest are:

IVW -large cap growth - P/E of 22.38 and P/B of 4.92
IVV - mimics SP500 - P/E of 20.69 and P/B of 3.85
IVE - large cap value - P/E of 19.5, P/B of 2.84.

The returns on these three for the past three months can be visualized in the following chart.


The chart shows the value segment outperforming the growth segment by about 3% points. The value segment is also outpacing SP500 by about 1.5% percentage points.

The second category would be the Vanguard ETFs. Vanguard has VTV, VV and VUG.

VUG - large cap growth has P/E of 21x, P/B of 4.0x and earning growth of 22%.
VV - large cap blend, mimics SP500, has P/E of 17.2x, P/B of 2.9x and earning growth of 18.8%
VTV - large cap value, P/E of 14.5x, the P/B of 2.3x and earning growth of 15%

The numbers are updated as of 1/31/2007 by Vanguard. The earning growth numbers are a bit suspect as the SP500 earning growth has moderated to about 11% YoY as of the new year.

The returns from these three funds over the past three months is noted below.


As seen with iShares, the Vanguard funds also show the value segment outpacing the blend and growth segments in the past three months. While the difference isnt as great as was the case with iShares, value still outperformed growth by about a percentage point.

It is difficult to predict which category will do better in any given year. Growth is expected to do well this year because of the accelerating revenues from the technology sector. A defensive investor may look at various factors before committing money to an asset class. The usual risk factors for equities apply.

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