Wary of riskier emerging markets? Consider US mega caps

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Nov. 20 2020, Updated 12:52 p.m. ET

US Mega Caps: Another idea to consider, particularly for those wary of investing in potentially more risky emerging markets (EEM), is to look toward US mega caps, accessible through the iShares S&P 100 Fund (OEF). They’re the cheapest area of the US market and they tend to be less volatile than small- and mid- cap names. Plus, if we do see some pick up in stock market volatility over the summer, as I expect, mega caps aren’t likely to suffer as much as small caps.

Market Realist – The graph above compares the performance of U.S. mega and large caps (OEF) and U.S. small caps (IWM) with the S&P 500 (SPY)(IVV). They’ve performed almost equally well with the S&P 500, slightly outperforming.

Mega and large caps are viewed as a safer option than investing in small caps. But mega caps tend to outperform small caps during high interest rate regimens.

Although interest rates are close to 0% at the moment, they’re expected to rise steadily in 2015. So investors wary of investing in risky sectors like small caps and emerging markets (EEM) could consider over-weighting mega caps, given the above argument.

Please read the next part of this series to learn which sectors you should consider at present.

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