Blue chip exchange-traded funds (ETFs) are collections of large, well-established, and well-known companies. In difficult economic times, many investors favor blue chip companies. They hope blue chip stocks will generate investment gains with more stable prices and dividend payments, avoiding the volatility of smaller and more speculative stocks.
Even in the world of blue chip companies, there are a lot of stocks that span all sectors of the economy. It can be difficult to decide which stocks in this corner of the investment universe are the best bet. That's where a blue chip stock ETF comes in.
Investing in blue chip stock ETFs
An exchange-traded fund (ETF) is an investment vehicle that trades just like a stock. However, with each share purchased, an investor gets instant diversification through the portfolio of stocks contained within the fund. A blue chip ETF is an ETF that holds stocks of blue chip companies -- large, stable, financially sound companies with strong reputations and a history of consistent performance.
Investing in a blue chip ETF can give your portfolio exposure to dozens or even hundreds of different companies across the whole economic spectrum. There are lots of different blue chip ETFs to choose from. Here is a list of some of the top offerings to check out:
ETF | Assets Under Management | Annual Fee | Description |
|---|---|---|---|
SPDR S&P 500 ETF Trust (NYSEMKT:SPY) | $717.21 billion | 0.0945% | This fund tracks the performance of the S&P 500 Index. |
SPDR Dow Jones Industrial Average ETF Trust (NASDAQ:DIA) | $45.47 billion | 0.16% | This ETF tracks the performance of the 30 stocks in the Dow Jones Index. |
Invesco QQQ Trust (NASDAQ:QQQ) | $412.42 billion | 0.2% | This ETF tracks the 100 largest nonfinancial stocks listed on the Nasdaq Stock Exchange. |
Vanguard Dividend Appreciation Index Fund ETF (NYSEMKT:VIG) | $120.4 billion | 0.05% | If growing investment income is what you're after, this ETF is designed to deliver just that. |
iShares Core High Dividend ETF (NYSEMKT:HDV) | $12.01 billion | 0.08% | This fund is composed of large companies that pay relatively high dividend yields. |
Vanguard Growth Index Fund ETF (NYSEMKT:VUG) | $353 billion | 0.04% | This ETF invests in high growth large-cap stocks. |
iShares MSCI EAFE ETF (NYSEMKT:EFA) | $73.26 billion | 0.32% | This is an international stock fund of large companies outside of the U.S. and Canada. |
iShares Global 100 ETF (NYSEMKT:IOO) | $8.16 billion | 0.4% | This is an investment in the top 100 largest global stocks. |
1. SPDR S&P 500 ETF Trust
NYSEMKT: SPY
Key Data Points
The first step in choosing an ETF is deciding what you want your portfolio to accomplish. For many investors, that starts with getting growth and income from broad-based stock market exposure. That's where the SPDR S&P 500 ETF Trust (SPY -0.49%) comes in, which is one of the most recognizable funds around.
As its name implies, the ETF mirrors the performance of the S&P 500 index -- one of the three most widely cited indexes of stock market performance that tracks approximately 500 of the largest U.S. companies listed on a U.S. stock exchange.
2. SPDR Dow Jones Industrial Average ETF Trust
NYSEMKT: DIA
Key Data Points
The Dow Jones Industrial Average, often simply referred to as "the Dow," is another much-watched index in the U.S. for measuring the performance of stocks. The index comprises 30 U.S. blue chip company stocks that act as a gauge of the U.S. stock market's health. However, most professional investors focus on indexes such as the S&P 500 or the Nasdaq Composite to judge market conditions.
Nevertheless, if an investment in the curated 30-stock portfolio of the Dow is what you're after, the SPDR Dow Jones Industrial Average ETF Trust (DIA -0.07%) is a solid blue chip investment. The fund charges a 0.16% expense ratio and provides exposure to every sector of the U.S. economy, although the Dow index is heavily skewed toward healthcare, tech, and financial services.
3. Invesco QQQ Trust
NASDAQ: QQQ
Key Data Points
The third-most widely watched and cited U.S. stock index is the Nasdaq Composite Index, which consists of all the company stocks listed exclusively on the Nasdaq Stock Exchange. Although it has become more diverse over the years, the Nasdaq is heavy on technology.
For a blue chip stock twist on the Nasdaq, though, consider the Invesco QQQ Trust. (QQQ -1.07%) This ETF is one of the largest and most actively traded funds, focusing on approximately 100 of the largest nonfinancial company stocks on the Nasdaq exchange.
The annual fee is 0.2%. Top holdings in the ETF include iconic tech brands Apple (AAPL -0.42%), Microsoft (MSFT -2.40%), Amazon (AMZN -2.45%), Tesla (TSLA -1.79%), and Google parent Alphabet (GOOGL -0.04%) (GOOG -0.04%).
4. Vanguard Dividend Appreciation Index Fund ETF
NYSEMKT: VIG
Key Data Points
One of the top reasons to invest in blue chip stocks is for the dividends -- excess cash that a company pays to its shareholders. Even better than a dividend, though, is a dividend that increases over time. That's where the Vanguard Dividend Appreciation Index Fund ETF (VIG -0.05%) shines.
The ETF comprised around 338 stocks with a track record of increasing their dividend payouts over time. A rising dividend is evidence of a company that can increase its profitability, which is the primary driver of stock price appreciation. A rising stock price and a rising dividend give investors two ways to compound their investment returns. The Vanguard ETF's annual fee is just 0.05%.
5. iShares Core High Dividend ETF
NYSEMKT: HDV
Key Data Points
NYSEMKT: VUG
Key Data Points
Not every blue chip stock needs to be a big dividend payer. Even large companies can still put up above-average sales growth rates. If you're looking for blue chip company growth stocks, then the Vanguard Growth Index Fund ETF (VUG -1.24%) is a top-notch option.
The fund invests in roughly 165 U.S. companies that are still growing rapidly. Investing in growing companies comes with trade-offs, though. More than half of the fund's assets are allocated to technology stocks (Apple, Microsoft, Alphabet, and others).
While these businesses have better odds of expanding over time, their stock prices tend to fluctuate in value much more than the overall market. This makes it one of the more volatile blue chip ETFs on this list.
7. iShares MSCI EAFE ETF
Cons
Any investment has its downsides, and here are a few to consider.
- Because blue chip companies are already large and mature, their potential for rapid, explosive growth is often limited compared to smaller, riskier growth stocks (if that's the sort of stock you like). If you are seeking to quickly maximize your capital appreciation, blue chip ETFs may not be the best tool.
- Some blue chip ETFs can have high exposure to a small number of large companies, especially if they are market-cap-weighted. This concentration means that if a handful of major holdings underperform, it could significantly reduce the ETF's value and your holdings.
- The popularity and stability of blue chip stocks can sometimes cause them to trade at higher valuations than their fundamentals might support. This can limit your potential returns, particularly if the market corrects.
As is true with most investments, it is best to put your cash into a wide variety of assets, industries, and sectors so you can benefit from numerous growth profiles within your portfolio.
Criteria to choose blue chip ETFs
When you’re choosing a blue chip ETF, there are multiple criteria to consider before you put your hard-earned cash to work. Here are some key elements to look for:
- The companies in the ETF's portfolio should be large, well-established businesses in their target industries or sectors.
- Look for companies that have consistently performed well over many years and through various economic conditions.
- As many blue chip companies pay reliable dividends, the ETF should reflect that history of steady or increasing payouts.
- Pay attention to the ETF's expense ratio, which is the annual fee charged by the fund manager.
Be sure to take the time to understand the ETF's structure and how it invests in its underlying assets, such as through index tracking.
Related investing topics
Blue chip ETFs versus individual blue chip stocks
Because an ETF holds a basket of numerous blue chip stocks, this can significantly lower the impact of any single company's poor performance on your portfolio and make the investment generally less risky. With an ETF, you can expect to track the average performance of the overall market or a specific sector. You hold all the winners and losers within the index, so you won’t miss out on top performers.
ETFs are ideal for hands-off investors. So, if you need an investment vehicle that requires minimal ongoing research and monitoring, a blue chip ETF might make more sense for your investing journey. Most ETFs are passively managed and have low expense ratios, too.
If you’re considering buying individual blue chip stocks, there are some factors to consider. Owning a single stock can carry the potential for significant portfolio outperformance if that specific company does exceptionally well. With a well-chosen individual stock, you can align your portfolio with specific interests or capitalize on your expertise in a particular industry.
However, picking individual stocks requires a greater degree of knowledge, research, and ongoing monitoring to manage your investments properly. You need to stay informed about company news, earnings reports, and market trends that affect each individual stock you own.
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