Exchange-traded funds (ETFs) are often associated with a lot of diversification. People often invest in them because they can gain a lot of exposure through just a single investment as ETFs often hold hundreds sometimes even thousands of stocks. But that’s not always the case.
There are also thematic ETFs which focus on stocks in certain sectors and industries, where there may be just be dozens of holdings. There are even narrower ETFs than that. Blackrock recently launched a new ETF which focuses on the top 20 U.S. stocks (based on market cap) which are in the S&P 500. The fund is called the iShares Top 20 U.S. Stocks ETF (NYSE Arca:TOPT)
Like many ETFs which focus on mirroring the index, that means big names Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), and Microsoft (NASDAQ:MSFT) are its top holdings. And together, they account for around 44% of the ETF’s overall weight. But because there aren’t that many stocks in the ETF, even the smallest stock in the fund, AbbVie (NYSE:ABBV), has a weight of 2%.
A key drawback of many ETFs is that smaller holdings, even if they do well, may not result in big gains for investors. And so even if a particular holding does well, it may not move the needle much for the ETF overall. But with every stock in this ETF making up a sizeable percentage, it could be a more appealing option for investors who simply want to focus on the largest stocks in the S&P 500 and profit from their gains.
The fund has an expense ratio of 0.20% which isn’t terribly high although it is more than many ETFs which track the index in its entirety. But if you want exposure to just the top stocks in the S&P 500, this can still be a good investment to consider.