ETF Scorecard: August 2011

Published on by on August 2, 2011 | Updated August 23, 2011

In this section of ETF Edge, we take a look at the monthly and year-to-date performances of various ETFs targeting the U.S. and international equity markets. In addition to segmenting ETFs by market capitalization, we also analyze the performance of funds implementing various weighting methodologies. Though the vast majority of equity ETF assets are in funds linked to cap-weighted indexes, investors have begun to examine the alternative weighting methodologies more closely. Often, the impact of the weighting methodology on bottom line returns can be significant, as demonstrated by the performance gaps in the adjacent table.

Financial markets broadly slid lower in July, and a weak first half of the month followed by failed attempts to regain previous highs didn’t leave investors much to smile about. Mid-caps were hit the hardest across nearly every weighting methodology. As expected, large-caps held their ground best and traditional cap-weighted funds were the strongest performers overall.

From a year-to-date perspective, the dividend weighting methodology is leading the way higher, beatings its closest competitor (equal weighting) and the popular SPY by more than a full percentage point. Small-cap dividends however remain in red territory for 2011, while the earnings-weighted methodology took the biggest hit this month across all market cap levels.

RSP is losing its impressive lead over SPY for the year, with only 10 basis points separating the two, compared to last months gap of  nearly 200 basis points. Dividend weighted funds are now leading the large-cap pack higher for the year, while equal weighted mid-caps are the strongest overall.

July was another down month not only for U.S. equity markets, but for developed ex-U.S. and emerging economies as well. Small caps in emerging markets performed best in this choppy month, demonstrating the potential benefits of uncorrelated returns associated with this “riskier” asset class.

Trends of recent years continue to be headed for a reversal so far in 2011; large cap stocks are broadly outperforming their small cap counterparts across all major regions from a year-to-date perspective.

As far as style goes, July’s results were vastly different from last months. Value stocks performed worst at home and abroad, while emerging market equities as a whole outperformed competitors across every style category.


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