Volume And Expenses Don't Tell Full ETF Story
Special Report: ETF Strategies
Looking for a top-performing ETF? High volume and low costs are often traits of funds that had superior returns.
But there's usually more to the story.
All of the nearby tables are drawn from nonleveraged ETFs that have an average daily volume of at least 500,000 shares, as of Oct. 9.
Among those, the upper table shows the funds with the highest year-to-date return. The six with the highest returns this year all posted gains in excess of 30%.VelocityShares Daily Inverse Short-Term ETN ( XIV ) came in as the leader with a 55.79% gain.
XIV is linked to the inverse of the daily performance of the S&P 500 Short-Term Futures Index ER, minus its investor fee that amounts to 1.35% of assets a year. XIV reflects bets on the volatility of the S&P 500 index, based on futures contracts on the VIX, a popular measure of the benchmark's implied volatility.
XIV's average daily volume is 11.2 million shares. Not shabby -- but well below the funds with the highest average daily volume, which are shown in the middle panel.
Those are led by the ETF universe's poster boy of popularity, SPDR S&P 500 ( SPY ). That ETF, which tracks the well-known broad market benchmark, sees an average of 109.5 million shares traded daily.
Its year-to-date return is 20.54%.
The absence of a reliable link between volume and performance is shown by the market return of iShares MSCI Emerging Markets ETF ( EEM ), which is the ETF with the second-highest average daily volume, 64.9 million shares.
Its year-to-date return is a weak 2.62% loss. The next two highest average daily volume ETFs also posted losses for the year.
Advisers often tout the importance of low cost. But the lowest-cost funds do not top the performance list. The top four had returns in excess of 20% year to date. That's decent, but not championship caliber.
Vanguard Total Stock Market ETF ( VTI ) and Vanguard S&P 500 ( VOO ) led that group with low 0.05% annual expense ratios. VTI's gain this year is 21.91%. VOO is up 20.69%. SPY has the fourth best expense ratio at 0.09% and a 20.54% gain.
So volume and expenses are only rough guides to performance leadership. Compare funds to peers tracking the same index to find your best choices for your goals and circumstances.