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Investment Profile

Investment Profile: Blue Chips

Holdings

Apple, Microsoft, Facebook, Amazon, and more

Managed by

Vanguard
Ticker: MGC

Risk Level

Conservative

Risk Level

Conservative

You’re likely to find blue chips on a poker table. But that’s not the only place you’ll find them–”blue chips” also describes certain financial securities–specifically, stocks from companies that, historically, have recorded solid performance, or have a history of paying investors dividends.

In other words, these stocks tend to be a safer bet than others. They’re shares in companies that are large, well-established, and have considerable market share in their respective areas of business. These stocks are also called large-cap stocks because the companies are worth at least $1 billion.

The combination of well-known and established companies, plus the potential for dividends tend to makes these stocks attractive to new investors.

Of course, big, established companies don’t always provide swift, strong growth that some investors hope for. But if you’re looking to find some solid footing in the market, a blue chip exchange-traded fund, such as the Blue Chips ETF on Stash, could make a useful addition to your portfolio.

What’s in the fund?

Blue Chips is what Stash calls the Vanguard Mega Cap ETF (MGC), a fund that includes stock from some of the country’s largest companies.

Blue Chips provides investors exposure to 260 companies, mostly located in the U.S., and in various industries including technology, finance, health care, consumer services, and energy. Among the fund’s largest holdings are some familiar names, including Amazon, Apple, Microsoft, Exxon Mobil, Johnson & Johnson, and Facebook.

The fund tracks the CRSP US Mega Cap Index, an index that tracks the largest companies in the U.S.

Performance

Vanguard launched the fund in 2007.

Year-to-date, as of June 2018, the fund has a return of -0.35%, according to Morningstar. And over the past decade, its returns have varied dramatically. In 2017, for example, the fund had a return of 22.61%, and in 2016, 11.9%. Its best year was in 2013, when it grew by more than 32%. In 2008, however, it lost nearly 36% of its value, along with the rest of the stock market.

Similar funds

Numerous other funds invest in blue chip companies.

For example, the PowerShares S&P 500 Top 50 ETF (XLG), which is managed by Invesco, is based on the S&P 500 Top 50 Index and also comprises many of the “blue chip” stocks found in MGC. Its holdings include Berkshire Hathaway, Exxon Mobil, Johnson & Johnson, and Intel. In all, XLG has 52 holdings and launched in 2005.

Year-to-date (as of June 2018), it had a return of 1.9%, according to Morningstar. In 2017, it returned 23%, and in 2016, more than 11%. And again, like Blue Chips, the fund was clobbered in 2008, falling in value by 34%.

Risks and considerations

Blue Chips gives investors exposure to many of the largest and most stable companies in the U.S. These companies are fairly diverse, ranging from oil and gas to social media and consumer products. They can potentially help diversify your portfolio, and make for a solid foundational investment.

The fund does have its risks, however.

Given that Blue Chips’ concentration is in large U.S. company stocks that typically represent the broader market, anything that affects the stock market is likely to affect the fund. If the markets start to dip, or enter a recession, for example, the fund is bound to lose value.

There are also risks associated with the types of stocks that make up the fund. Since the fund’s holdings are primarily large companies, there’s a chance that their performance may differ from the market at large, according to the fund’s prospectus.

“Large-cap stocks tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These periods have, in the past, lasted for as long as several years,” the prospectus says.

Costs

The fund’s expense ratio is 0.07%, which is lower than the industry average.

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By Sam Becker
Sam Becker is Stash's financial writer.

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This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

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