I started out the day with the intention of recommending a large-cap stock for Investopedia readers. However, before I could settle on one particular option, an exchange-traded fund (ETF) jumped out at me that solves all of your equity needs in one, reasonably priced package. Read on and I'll explain why most investors shouldn't hesitate owning this fund including yours truly.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Just One

The ETF I speak of is brought to you by the good people at Russell Investments, who created the Russell Equity ETF (ARCA:ONEF) in May 2010. Constructed as a "fund of funds," it uses an asset allocation strategy to invest in other ETFs. The current list of holdings includes a total of 10 ETF's from iShares, Russell and Vanguard. The biggest holding by far is the iShares Russell 1000 Index Fund (ARCA:IWB), which represents over 47% of the entire portfolio. Investing in some of America's largest companies, the average market cap is roughly $99 billion, firmly in large cap territory. If you already own ETF's, it's very possible that the IWB is one of them. So, the question becomes why an investor would own the 10 additional funds; especially when the ONEF has underperformed the S&P 500 by around 397 basis points annually since its inception two years ago. My simple answer is that most people have better things to do with their time than buying and selling ETF's. This one fund does it all when it comes to equities. No muss, no fuss.

What About the Fees?

In my previous life before becoming a writer I marketed wrap investments in Toronto. Inevitably, the biggest question potential investors had involved the fees. Am I paying for fees on top of fees? Is this extra layer of advice really worth it? I could go on. The point being that open-ended "fund of funds" often possessed this Byzantine schedule of fees, and an investor quite rightly needed to do his or her homework. The beauty of this ETF is that Russell provides an actively managed asset allocation for just 0.51% annually. A $10,000 investment would incur fees over 10 years of just $640 dollars. On its overview page, as well as in the prospectus, it points out that the 11 ETFs that make up its holdings add approximately 0.16% in fees on top of the 0.35% management fee. When you consider that you'll pay an annual expense ratio of 0.70% for the completely passive First Trust NASDAQ Global Auto Index (Nasdaq:CARZ), I consider the ONEF a much better deal.

Active Vs. Passive ETF Investing


If you're feeling the need for income, I suppose you could add a bond fund like the Vanguard Total Bond Market ETF (ARCA:BND), which has a SEC yield of 1.96% and is dirt cheap at a 0.10% expense ratio. However, the ONEF provides almost as much yield with a much better capital appreciation potential. Personally, in today's interest rate environment, this one fund is all you need. Nonetheless, for those who thirst for yield, take a look at Russell's High Dividend Yield ETF (ARCA:HDIV), which has an expense ratio of 0.33% and a SEC yield of 4.04%. If you're going to chase yield, this is a better way to go. Years ago I can remember seeing George Russell on a TV show answering a question about the appropriateness of equities in a senior's portfolio. Russell basically said even a 90-year-old grandmother should own some because of the inflation protection they provide. Bonds can serve a purpose but don't be fooled into thinking they're any safer long term.

SEE: Advanced Bond Concepts

The Bottom Line

The Russell Equity ETF is as tiny as they come with less than $6 million in net assets and a little more than 1,200 shares traded daily. Many will avoid it--Don't!

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center