VIG Vanguard Dividend Appreciation ETF

U.S. markets stole the show in 2013, as broad benchmarks had one of their best years in recent memory. The S&P 500 added over 30% on the year, while small caps performed even better than that.

Thanks to this solid economic environment, and hopes for more gains this year, ETFs targeting the U.S. economy have been seeing solid inflows as of late. In fact, over the past year, more than $117 billion has flowed into U.S. equity funds (per data from XTF.com), showcasing how much interest there has been in American-focused investments.

With these kind of inflows, it shouldn’t be too surprising to note that some ETF issuers have put out new funds targeting the U.S. market in recent months. While many of these funds are ‘me-too’ products, there are still a few novel funds hitting the market, even in the crowded U.S.-equity space (see all the Total Market US ETFs).

In particular, the latest addition from PowerShares, the NYSE Century Portfolio—trading under the symbol of NYCC—could be an interesting (and safe) way for investors to play the broad U.S. market. We have highlighted some of the key details below regarding this new fund, and how this product might be a solid way for some investors to use it to establish broad market U.S. exposure:

NYCC ETF in Focus

NYCC tracks the NYSE Century Index, a benchmark of companies that have been incorporated in the U.S. for at least 100 years. Firms also must be listed on major US exchanges, and have a market capitalization of at least $1 billion.

This approach is designed to give exposure to some of the largest and oldest public companies in the United States. The technique could also tilt towards safer companies that have endured both recessions and boom periods, and seem poised to survive the next round of trouble as well (see Play Safe with These 3 ETFs).

“The PowerShares NYSE Century Portfolio invests in household names that have defined the American economy for more than a century,” said Martin L. Flanagan, president and CEO of Invesco. "We believe NYCC offers investors targeted exposure to companies that have demonstrated the ability to innovate, transform and grow through decades of varying economic cycles, political conditions and social change.”

The fund is a bit pricey though, as its expense ratio comes in at 50 basis points a year. This is far higher than what many other U.S. market ETFs charge, and considering that there is only an annual rebalancing—and probably minimal turnover—it does look to be a profitable fund for PowerShares should the assets under management increase.

NYCC Holdings

In a bit of a surprise, the fund does hold nearly 375 companies, so there is apparently a pretty large basket of century-old firms out there. Additionally, just 30% of its portfolio is in large caps, so there are quite a large number of mid and small cap securities that have stood the test of time (also see 3 Small Cap Value ETFs Poised to Outperform).

Financials take the top spot in terms of a sector allocation, at just under 24% of assets. This is closely followed by industrials at 20%, and then both the consumer sectors and utilities take up roughly 10% of NYCC as well.

How does it fit in a portfolio?

The fund could be an interesting choice for investors who want broad U.S. market exposure with a tilt towards safety. It may also be appropriate for those seeking to avoid tech names, as technology and telecom combine to make up less than 5% of the portfolio.

NYCC might not be the best choice for those seeking a low cost option, as there are plenty of cheaper funds out there. Additionally, the fund might not be a great pick in high growth environments (due to its tilt towards safer sectors), though the underlying index did outperform the S&P 500 in 2013.

ETF Competition

There aren’t really any direct competitors for NYCC, though there are several broad market ETFs out there. A popular example in this respect is the Vanguard Total Stock Market ETF (VTI) which costs just five basis points a year and has nearly $40 billion in AUM.

In terms of other funds with a ‘time’ component, there are several dividend ETFs that only hold securities that have been raising dividends for at least a decade. These include VIG and SDY, though this focus on dividend appreciation is obviously different than what NYCC is zeroing in on (see 4 Ways to Grow Dividends with ETFs).

Bottom Line

Given the differences between the new PowerShares fund and what else is on the market, there may be room for NYCC in what is otherwise a very crowded space.  The product does manage to find an interesting niche in a very competitive market, so we will have to see if investors want to embrace this approach.

However, the somewhat steep cost—at least compared to others in the multi-cap market—could be prohibitive in terms of gaining assets in the near term. NYCC will have to outperform broad markets this year in order to prove its mettle, and demonstrate to investors that focusing on century old companies can be a time-tested strategy for gains.

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SPDR-SP DIV ETF (SDY): ETF Research Reports
 
VANGD-DIV APPRC (VIG): ETF Research Reports
 
VIPERS-TOT STK (VTI): ETF Research Reports
 
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