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.

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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.

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