XLG: Guggenheim Russell Top 50 Mega Cap ETF

XLG: Guggenheim Russell Top 50 Mega Cap ETF 

The Guggenheim Russell Top 50 Mega Cap ETF (NYSEARCA: XLG) is an exchange-traded fund (ETF) designed to provide investors with exposure to the 50 largest U.S. companies. Since XLG's inception on May 4, 2005, the fund has an annualized market return of 6.76% as of Aug. 6 2015. These past returns do not indicate that XLG will provide the same returns in the future.

XLG has a diversified portfolio, allocating its portfolio to multiple sectors, such as 25.95% in technology, 19.47% in health care, 15.87% in financial services, 10.94% in consumer staples, 10.19% in consumer discretionary, 6.75% in energy, 6.2% in product durables, 4.53% in utilities and 0.1% allocated to other sectors.

XLG tracks the daily price movements and provides exposure to 50 of the largest U.S. companies, by market capitalization, by holding common stock of the component companies of the Russell Top 50 Mega Cap Index. For example, as of Aug. 6, 2015, the fund top 10 holdings are 7.55% Apple Incorporated, 4.29% Microsoft Corporation, 3.72% Exxon Mobil Corporation, 3.13% Johnson &; Johnson, 3.05% Wells Fargo &; Company, 2.99% Berkshire Hathaway Incorporated Class B, 2.99% General Electric Company, 2.88% JP Morgan Chase &; Company, 2.47% Pfizer Incorporated and 2.37% AT&;T Incorporated. These holdings are subject to change and may not reflect the fund's future holdings and sector allocations.

Characteristics

The Guggenheim Russell Top 50 Mega Cap ETF is listed on the New York Stock Exchange Arca, and investors can trade the ETF on multiple platforms on the secondary market. The investment adviser of the fund is Security Investors LLC, and the distributor is Guggenheim Fund Distributors LLC.

The fund maintains a low turnover ratio of 6%, which may indicate the fund implements a passive management strategy that keeps the expense ratio low. Given the average expense ratio of the XLG category of large blend is 0.34%, the fund has a competitive expense ratio of 0.2%. The expense does not include broker and trading fees.

Suitability and Recommendations

Since XLG tracks the prices of U.S. mega-cap companies, investors should pay attention to the risks associated with the ETF. These risks include equity risk, market risk, economic risk and interest rate risk. Similarly, investors should follow news stories related to the fund's top weighted holdings, which can affect the prices of the ETF.
As of July 31, 2015, based on trailing five-year data, XLG had an alpha (against the S&;P 500 Total Return USD Index) of 0.05, a beta (against the S&;P 500 Total Return USD Index) of 0.94, an R-squared of 95, a Sharpe ratio of 1.31 and a Treynor ratio of 16.18.

Based on modern portfolio theory (MPT), the fund's alpha indicates it outperformed the S&;P 500 TR USD Index by an annualized 0.05%. XLG's beta indicates it is theoretically less volatile than the S&;P 500 TR USD Index; this may indicate XLG carries less risk than the index. XLG's R-squared indicates that 95% of its past fluctuations can be explained by fluctuations in the S&;P 500 TR USD Index. XLG's Sharpe ratio indicates the fund has been providing investors with favorable returns on a risk-adjusted basis. Similarly, the fund's Treynor ratio indicates that it generated an annualized 16.18% per unit of risk. These past statistics may not be indicative of the fund's future performance.

The fund is not suitable for all participants in the stock market. Its scanty average daily share volume, which may be too illiquid, may not suitable for traders and speculators. XLG is a low-risk, high-reward investment suitable for investors who seek exposure to U.S. mega-cap companies and do not want to hold portfolios of companies with which they are unacquainted. The fund is best-suited for investors who seek overweight exposure to mega-cap stocks while maintaining below-average risk.