BlackRock has launched a new ETF called the iShares S&P 500 3% Capped ETF (ARCA:TOPC). It is the first U.S. ETF designed to limit the weight of individual stocks to 3%. This move comes at a time when just seven companies represent over $15 trillion in market value.
That is comparable to the entire U.S. stock market’s value in 2000. The increasing concentration of mega-cap stocks has raised concerns. There are worries about the volatility and unevenness of classic cap-weighted indexes.
To address this, TOPC seeks to mitigate concentration risk. It tracks the S&P 500 3% Capped Index. This redistributes excess weight from mega-cap stocks to the index’s smaller constituents.
The strategy maintains broad market exposure. At the same time, it encourages more diversification across issuers and sectors. TOPC is part of the iShares Build suite.
Mitigating concentration risk
This comprises BlackRock’s core building-block ETFs. They are created for both retail and institutional investors to gain low-cost, versatile market exposure.
After an expense reduction, TOPC has a net expense ratio of 0.09%. While it largely mirrors the legacy S&P 500, TOPC restricts the influence of market giants. This includes companies like Apple, Microsoft, and Nvidia.
They have recently exceeded 6% weightings in uncapped benchmarks. The ETF can invest up to 20% of its net assets in futures, options, or cash strategies. This provides consistent exposure during index rebalancing.
The core sector exposures of TOPC remain in technology and financials. However, it has a slightly more balanced tilt compared to the broader market. BlackRock’s new launch underscores its ongoing effort.
The company aims to provide precision instruments for investors. This is especially important as they navigate a market increasingly dominated by a few tech behemoths.
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