There are instances in life when size does matter - but when
it comes to ETFs, size can be deceiving.
Investors have a tendency to equate a fund's size with
quality, but there is no empirical evidence to suggest that
simply because an ETF is home to a large assets under management
and robust average daily trading volume that it is a "good"
In fact, the volume argument has
already been proven wrong
as a plethora of thinly-traded ETFs have shown stellar returns in
As for size by way of assets, that's another argument that
has been discredited
as there are plenty of "me too" ETFs that have outpaced their
larger rivals. in other words, the proof is in the pudding that
popularity is great in high school - but not so much with
With that, here are a few ETFs that some investors probably
haven't heard about. These obscure funds are outdoing their more
PowerShares Dynamic Energy Exploration & Production
The energy sector is one of the ideal places to find
unheralded ETFs that are delivering better returns than their
more popular equivalents. There's no denying that the Energy
Select Sector SPDR (NYSE:
) and the Vanguard Energy ETF (NYSE:
) make for decent choices for investors looking for exposure to
integrated oil stocks. Both ETFs are large, highly liquid, and
feature expense ratios of just 0.18% and 0.19% respectively.
Those factors don't change the fact that the PowerShares
Energy Exploration & Production Portfolio, which holds many
of the same stocks as XLE and VDE, is the better performer over
almost all relevant time horizons. PXE is more expensive at 0.63%
per year, but paying another 45 basis points in fees, investors
get an ETF that has outperformed XLE and VDE year-to-date, over
the past year and over the past five years. And yes, PXE
outperforms its rivals by more than enough to make up for its
PowerShares NASDAQ Internet Portfolio (NASDAQ:
When it comes to ETFs that are devoted exclusively to high
momentum Internet stocks such as Amazon (NASDAQ:
) and Priceline (NASDAQ:
), investors have two choices: the larger, more widely-followed
First Trust Dow Jones Internet Index Fund (NYSE:
) and the PowerShares Nasdaq Internet Portfolio.
The two ETFs make for a compelling, if undiscovered
, but how intense is debatable. With $427 million in AUM, FDN is
more than eight times larger than PNQI.
That's not what's important. What's important is the fact that
both ETFs charge 0.6% annually, but year-to-date, over the past
year and over the past five years, PNQI is the winner in terms of
performance - by noteworthy margins, we should add.
First Trust Financials AlphaDEX Fund (NYSE:
It's a daunting task for an ETF tracking bank stocks to stand out
in what is a heavily crowded field, but FXO does have its perks.
The five-year-old ETF has almost $172 million in AUM and its
average daily volume is strong at over 473,000 shares. Still, FXO
is overshadowed by the likes of the Financial Select Sector SPDR
) and the Vanguard Financials ETF (NYSE:
Year-to-date, FXO has slightly lagged XLF and VFH. Over the
past 90 days, the First Trust fund is in the middle of this
three-fund pack. Stretch things out over a year, or five years,
and FXO's dominance becomes apparent. XLF and VFH are nowhere
close to FXO over those time horizons.
First Trust Materials AlphaDEX Fund (NYSE:
As is the case with the financial services sector, it's hard
for some materials ETFs to really standout in the face of intense
competition from the dominant funds such as the Materials Select
Sector SPDR (NYSE:
) and the iShares Dow Jones US Basic Materials Index Fund (NYSE:
FXZ warrants consideration for the same reasons that PXE and
FXO do: different index and weighting methodologies have lead to
superior returns. FXZ's constituents are ranked by factors
including three, six and 12-month price appreciation; sales to
price and one year sales growth - and, separately, on value
factors including book value to price, cash flow to price and
return on assets, according to First Trust.
In other words, market cap isn't the sole factor in
determining a stock's weight in this ETF. The combined diversity
of factors delivers an ETF that has outperformed IYM and XLB over
the past six months, year-to-date and over the past year. Over
the past five years, FXZ is the only member of this trio to sport
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