The ETF universe continues to expand in size and popularity as more and more investors have grown comfortable with utilizing exchange-traded funds for everything from establishing core exposure in desired asset classes to using them as tactical trading tools. ETFs have rightfully earned their “easy-to-use” reputation as they have allowed for self-directed investors to access niche corners of the global market as well as other sophisticated strategies that were once out-of-reach for most [see Periodic Table of ETFs: What Popped and What Dropped in 2013].
With innovation also comes complexity, and as such, it’s no surprise that the roster of actively-managed funds continues to expand. Investors can now pick from more than 60 actively-managed funds, but because many of these offerings tend to charge far steeper expense fees than their passive, plain-vanilla counterparts, many buyers are rightfully asking “Are the extra fees worth it?” [see Cheapest ETF for Every Investment Objective].
Which Active ETFs Beat the S&P 500 in 2013?
Wall Street awards no points for fancy algorithms or complex rotation strategies, so what matters at the end of the day, or rather the year, is whether or not the extra percentage points you pay for your actively-managed strategy are earning you extra percentage points compared to what you could have achieved with a passive ETF linked to a traditional benchmark.
|Ticker||ETF||2013 Return||Expense Ratio|
|SPY||State Street SPDR S&P 500||32.31%||0.09%|
|RWG||Columbia Large-Cap Growth Equity Strategy Fund||44.66%||0.89%|
|TTFS||AdvisorShares TrimTabs Float Shrink ETF||43.55%||0.99%|
|FWDD||AdvisorShares Madrona Forward Domestic ETF||38.58%||1.12%|
|HUSE||Huntington U.S. Equity Rotation Strategy ETF||34.84%||0.95%|
|RPX||Columbia Growth Equity Strategy Fund||34.35%||0.89%|
|GVT||Columbia Concentrated Large Cap Value Strategy Fund||34.21%||0.79%|
|HECO||Huntington EcoLogical Strategy ETF||32.63%||0.95%|
In an effort to answer this age old question, the table above features the seven actively-managed ETFs that managed to beat the market in 2013; please note this comparison excludes trading costs and is based around the SPDR S&P 500 (SPY, A), which gained just over 32% from 12/31/2012 to 12/31/2013 [see Head-to-Head ETF Comparison Tool].
The image above illustrates how a number of these funds, namely TTFS and RWG, managed to consistently outperform the broad equity market throughout the course of the entire year, further adding merit to their respective strategies. Here is a brief look under the hood of the seven ETFs that ended the year ahead of the coveted S&P 500 ETF (SPY).
- (RWG, C): This fund seeks long-term capital appreciation by focusing on U.S. large-cap stocks that exhibit above-average growth prospects; some of the top holdings that bolstered this ETF to the top of the ranks include Michael Kors (KORS), Priceline.com (PCLN), and VMware (VMW).
- (TTFS, B): This fund looks to outperform the Russell 3000 Index by adhering to “Liquidity Theory,” which offers an insightful way to analyze security prices that doesn’t rely on standard valuation metrics. TTFS boasts an equal-weighted portfolio, including exposure to Allergan (AGN), Oracle (ORCL), and Citrix Systems (CTXS).
- (FWDD, C+): This ETF uses a weighted allocation methodology that selects and weighs large-cap stocks from the S&P 500 Index based on consensus analyst estimates of the present value of future expected earnings. This forward-looking approach features allocations to Micron Technology (MU), PulteGroup (PHM), and Whirpool (WHR), although the portfolio as a whole is very well-balanced.
- HUSE: This ETF strives to beat the S&P 1500 Index by identifying and overweighting the companies that may experience more profitability given the current economic cycle at hand. Some of HUSE’s holdings are Apple (AAPL), Google (GOOG), and Exxon Mobil (XOM).
- (RPX, C+): Similar to RWG, this ETF aims to pick large-cap stocks deemed to have above-average growth prospects. Some of RPX’s top holdings include Apple, Google, and Gilead Sciences (GILD).
- (GVT, C): This ETF uses a bottom-up stock selection process to select value companies from the Russell 1000 Index. Some of GVT’s top holdings include Wells Fargo (WFC), Applied Materials (AMAT), and Tyson Foods (TSN).
- (HECO, C): This ETF just barely managed to beat the market by targeting ecologically-focused companies, including eBay (EBAY), Whole Foods Market (WFM), and The Hain Celestial Group (HAIN).
Investors who wish to add an actively-managed strategy to their portfolios ought to consider the ETFs profiled above as they impressively managed to outpace the broad equity market amid one of the strongest bull-runs in recent Wall Street history.
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Disclosure: No positions at time of writing.