Blue chip stocks are large, well-established, and well-known businesses. 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.
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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 stock ETF can give a 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 in 2022:
| ETF | Assets Under Management | Annual Fee | Description |
|---|---|---|---|
| SPDR S&P 500 ETF (NYSEMKT:SPY) | $363 billion | 0.0945% | A fund that tracks the performance of the S&P 500 Index. |
| SPDR Dow Jones Industrial Average ETF (NASDAQ:DIA) | $27.7 billion | 0.16% | An ETF that tracks the performance of the 30 stocks in the Dow Jones Index. |
| Invesco QQQ Trust (NASDAQ:QQQ) | $165 billion | 0.2% | This ETF tracks the 100 largest non-financial stocks listed on the Nasdaq Stock Exchange. |
| Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) | $75.9 billion | 0.06% | If growing investment income is what you’re after, this ETF is designed to deliver just that. |
| iShares Core High Dividend ETF (NYSEMKT:HDV) | $12.4 billion | 0.08% | A fund composed of large companies that pay relatively high dividend yields. |
| Vanguard Growth ETF (NYSEMKT:VUG) | $153 billion | 0.04% | This ETF invests in high growth large-cap stocks. |
| iShares MSCI EAFE ETF (NYSEMKT:EFA) | $43.3 billion | 0.32% | An international stock fund of large companies outside of the U.S. and Canada. |
| iShares Global 100 ETF (NYSEMKT:IOO) | $3.65 billion | 0.4% | An investment in the top 100 largest global stocks. |
Data source: iShares, Vanguard, State Street SPDR, and Invesco. Current as of Sept. 9, 2022.
1. SPDR S&P 500 ETF
The first step in choosing an ETF is deciding what you need 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 comes in, which is one of the most recognizable funds around.
As its name implies, the ETF mirrors the performance of the -- one of the three most cited indices of stock market performance that tracks 500 of the largest U.S. companies listed on a U.S. stock exchange. This also happens to be the largest ETF, with $363 billion in investor funds under management. The annual fee is just 0.0945% annually (or $0.94 per year for every $1,000 invested).
2. SPDR Dow Jones Industrial Average ETF
The Dow Jones Industrial Average, often simply referred to as “the Dow,” is another top-watched index in the U.S. for measuring the performance of stocks. The index is made up of 30 U.S. blue chip company stocks that act as a gauge of overall U.S. stock market health, although most professional investors focus on indexes such as the S&P 500 or 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 is a solid blue chip investment. The fund charges 0.16% a year. It 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
The third widely watched and cited U.S. stock index is the Nasdaq Composite Index, which consists of all the company stocks exclusively listed 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. The ETF is one of the largest and most-traded funds and focuses on the largest 100 non-financial company stocks on the Nasdaq Exchange. The annual fee is 0.2%. The top five holdings in the ETF are iconic tech brands Apple (AAPL -0.59%), Microsoft (MSFT -0.14%), Amazon (AMZN -0.35%), Tesla (TSLA -2.32%), and Google parent Alphabet (GOOGL -0.96%) (GOOG -0.91%).
4. Vanguard Dividend Appreciation ETF
One of the top reasons to be invested 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 ETF shines.
The ETF consists of 289 large company 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 Dividend Appreciation ETF’s annual fee is just 0.04% a year.
5. iShares Core High Dividend ETF
Not all dividend-paying stocks need to have proven their ability to rapidly raise their payout over time to make them a worthy investment. The iShares Core High Dividend ETF takes an alternate approach to income-generating blue chip stocks. It invests in 75 large companies in good financial health paying a relatively high dividend yield.
The fund charges 0.08% a year in fees. Its focus is on sectors of the economy with stocks that tend to pay higher dividend yields, such as energy and utilities, healthcare, and consumer goods companies. Top holdings include energy giants ExxonMobil (XOM 1.07%) and Chevron (CVX -0.84%), pharmaceutical companies Johnson & Johnson (JNJ -0.39%) and AbbVie (ABBV 1.06%), and telecom household name Verizon (VZ -1.04%).
6. Vanguard Growth ETF
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 blue chip company growth is what you’re looking for, then the Vanguard Growth ETF is a top-notch option.
The fund invests in 260 large U.S. companies that are still growing rapidly. The fund charges just 0.04% a year in fees and manages $153 billion in customer funds. Investing in growing companies comes with trade-offs, though. Almost 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
Large, well-established, and easily recognizable businesses don’t just come from the U.S. The whole world is filled with top brands, and it’s possible to invest in them as well. The iShares MSCI EAFE ETF aims to help with just that. The fund is composed of more than 800 large company stocks located outside of the U.S. and Canada.
The ETF charges 0.32% a year in fees, and top holdings include food conglomerate Nestle (NSRGY 0.77%), healthcare products and big pharma company Roche (RHHBY 0.96%), and top semiconductor technologist ASML Holding (ASML 3.62%).
8. iShares Global 100 ETF
The iShares Global 100 ETF is another international blue chip company fund. It includes stocks from North America and only holds the world’s 100 largest businesses. The ETF charges 0.4% in annual fees.
The fund offers investors a global blend of all the companies previously mentioned above -- from tech titans to large healthcare companies to financial service providers. The businesses also run the gamut from fast-growing to more stable dividend payers. For a well-rounded portfolio of large-cap stocks, the iShare Global 100 ETF is worth a look.
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Blue chip stocks aren’t a perfect solution
Many investors are drawn to blue chip stocks in the hope that these companies will help them safely ride out economic storms. However, even large and well-established companies can endure painful turbulence. Investing in blue chips certainly does not mean an escape from the ups and downs from the stock market.
A well-diversified lineup of blue chip stocks is a resilient portfolio that can roll with the punches and rebound after the economy falters. Blue chip stocks are also ideal for investors seeking income since firmly established companies tend to be able to keep doling out dividends even in difficult times.
Whatever your goal as an investor, blue chip stocks should comprise some portion of your investments. Investing in an ETF can help you put together a list of blue chip names without having to hand-pick large businesses for your investment dollars.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo has positions in ASML, Alphabet, Amazon, Apple, Tesla, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Apple, Microsoft, Tesla, Vanguard Index Funds - Vanguard Growth ETF, and Vanguard Specialized Funds - Vanguard Dividend Appreciation ETF. The Motley Fool recommends Chevron, Johnson & Johnson, Nestlé, Roche Ag, and Verizon Communications. The Motley Fool has a disclosure policy.
