Now that the Fed has launched a third round of quantitative
easing, markets seem likely to struggle in the coming weeks and
months. Foreign markets are undoubtedly under pressure thanks to
weakness, while a lack of further stimulus and political issues at
home threaten domestic equities as well.
In this environment, many investors turn to large cap, dividend
paying stocks for protection. This can generally be a good strategy
as the dividends help to reduce losses while the large cap nature
usually means that they are less volatile than their small cap
Three Impressive Small Cap Dividend ETFs
Additionally, some investors have taken another look at active
management in this difficult time, even in the large cap market.
Some investors are skeptical of active techniques working in the
extremely liquid and well-researched large cap segment, but given
the increasingly polarized market-with some large caps soaring and
others pushing towards new lows-the approach could deserve a second
look from many investors.
For those who may be considering a more active approach in the
large cap space, there are actually a handful of ETFs that offer
quality exposure to this market segment while still employing
active management techniques. While these funds may not be the most
popular or liquid, they could be interesting picks for investors
seeking a relatively cost effective way to target only the best
sectors and stocks in the American economy that are occupying the
large cap space (read
Three Biggest Mistakes of ETF Investing
Below, we highlight three ETFs that can potentially deliver
outsized returns in the active large cap ETF market. While each
have their own pros and cons, any of the group could be worth a
closer look, especially if you are growing concerned over broad
markets and are hoping to focus in on the best of the giant caps
for investment in this uncertain time:
AdvisorShares Madrona Domestic ETF (
This product seeks long-term capital appreciation in excess of
the S&P 500 index. This looks to be done by weighting
securities based on consensus analyst estimates of the present
value of future expected earnings, giving a very quantitative
approach to FWDD's investment process.
FWDD's approach results in a fund that is tilted towards tech,
consumer discretionary, and financials, although it does allocate a
double digit allocation to healthcare, energy, and industrials as
well, suggesting a well spread out portfolio. This is further
confirmed by the fund's top holdings, as no one security accounts
for more than 1% of the total assets (also see
The Best Bond ETF You Have Never Heard Of
With this technique, investors can rest assured that a great
deal of the market is represented, meaning that the fund can
definitely be a broad market replacement for some investors.
Furthermore, the product promises to have a low turnover rate which
could help it be more stable-and potentially more tax
efficient-than some of its peers in the active large cap world.
However, investors should note that volume is quite light,
suggesting bid ask spreads may be quite wide in the product.
Additionally, the net expense ratio comes in at 1.12%, meaning that
it will be quite expensive when compared to its passive
PowerShares Active Mega Cap Fund (
For one of the older active large cap ETFs, investors should
look no further than PMA in their search. The fund looks to
outperform the Russell Top 200 Index while managing risk by
employing Invesco Institutional's proprietary stock selection
This technique ranks stocks on 17 different variables while also
analyzing stocks based on risks while rebalancing them on a monthly
basis. Some of the many key factors that are used include earnings
momentum, price trend, management action, and relative value
Three Overlooked Active ETFs
Currently, this produces a fund that is relatively concentrated
in a few choice sectors, as technology makes up just over one-third
of the portfolio. Beyond that, financials, energy, and health care
account for another 51% of the assets, suggesting that PMA has a
heavy bias towards a few segments of the American economy.
It should be noted that the number of holdings overall is rather
low at just under 50, possibly part of the reason for its
relatively low fee of 75 basis points per year. Yet, much like
other funds on this list, it suffers from low volume, suggesting
that total costs could be far higher than what investors might
expect thanks to bid ask spreads.
Rockledge SectorSAM ETF (
For a more market neutral approach, SSAM could be an interesting
pick. The product looks to generate stable and consistent returns
in all market conditions by using both long and short investments
in various sector ETFs.
The idea is to go long in sectors that Rockledge believes will
outperform, while shorting those segments that the manager believes
are due to underperform broad markets. This approach, since it uses
equal dollar amounts for long and short investments, could also
help to reduce overall market risk, making it an interesting pick
for investors who are worried about a broad market decline but
still want to be in stocks (read
AdvisorShares Launches Rockledge SectorSAM ETF
Currently, SSAM is long in financials, energy, and consumer
discretionary, each making up about 33% of the portfolio.
Meanwhile, on the short side, technology, staples, and health care
round out the top three, although industrials, utilities and
materials also make their way into the short side of the equation
Like others on this list, volume is pretty light along with AUM,
meaning that bid ask spreads will add to total costs.
Unfortunately, this is especially a problem for SSAM thanks to its
short exposure technique, pushing the net expense ratio for this
active ETF up to 1.5%.
Nevertheless, for investors looking for an active approach in
the large cap market, this is one of the only market neutral picks,
a factor that could potentially make up for this expense problem,
at least for some investors.
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MADR-FWD DOMEST (FWDD): ETF Research Reports
PWRSH-AC MEG-CP (PMA): ETF Research Reports
ROCKLG-SECTORSM (SSAM): ETF Research Reports
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