Three Market-Based ETFs Trouncing SPY
Heading into the start of trading Wednesday, the SPDR S&P 500 (NYSE: SPY) was up 10.6 percent year-to-date, including paid dividends. That sounds pretty good and it is, but there have plenty of other broader market, or so called market-based ETFs, that have sharply outperformed SPY.
What is interesting about the following group of ETFs is that they all offer exposure to a particular niche. While that laser focus implies these funds are not as diverse as SPY or another large index ETF, this trio is neither full overly complex concepts nor opaque methodologies that could scare some investors off. What these funds are long is returns. Returns that have been crushing the S&P 500 this year.
PowerShares Buyback Achiever Portfolio (NYSE: PKW)
Flush with cash, U.S. companies are buying back their shares at a voracious clip this year. Share repurchase authorizations this year through March totaled an estimated $208 billion, MarketWatch reported, citing Birinyi Associates. That is good for the highest level since 1985, according to the Birinyi data.
While the buyback vs. dividend debate will probably never lose steam, there are some advantages to buybacks. For example, high quality companies that repurchase five percent or more of their shares outstanding frequently beat the S&P 500, according to Ford Equity Research.
Frequently beating SPY is exactly what the PoerShares BuyBack Achiever Portfolio does. PKW has outpaced SPY by nearly 400 basis points this year, but that is nothing compared to the historical returns. Over the past two years, PKW is up 32.3 percent compared to 22.8 percent for SPY. Over the past three years, the gap grows to 57.1 percent for PKW to 41 percent for SPY. Those gaps in performance in favor of PKW render SPY's lower fees a moot point. (PKW charges 0.71 percent per year).
PKW is almost 36 percent allocated to discretionary names with financials, technology and health care also receiving double-digit weights. Top holdings include Amgen (NASDAQ: AMGN), ConocoPhillips (NYSE: COP) and Oracle (NASDAQ: ORCL).
Guggenheim Defensive Equity ETF
We took a look at the Guggenheim Defensive Equity ETF in early March and since that time, the fund has outpaced SPY by about two-to-one. Year-to-date DEF is higher by more than 14 percent while featuring volatility of 7.6 percent compared to 10.3 percent for SPY.
And that is part of the allure of DEF, the lower volatility. In fact, one could argue DEF is misnamed given how popular low volatility ETFs are these days. Slap "low vol" into DEF's title and its assets under management could spike. As it is, DEF is one of better sub-$100 million ETFs conservative investors can get involved with.
Utilities and staples combine for over 48 percent of DEF's weight and that helps lead to a beta of 0.55, according to Guggenheim data. DEF's standard deviation against the S&P 500 is 9.7 percent compared to 15.3 percent for the benchmark index.
Guggenheim Spin-Off ETF (NYSE: CSD)
For those that think buybacks are good, checkout what spin-off stocks can do for a portfolio. In 2013, the Guggenheim Spin-Off ETF has outpaced SPY by over 700 basis points and this is not a one-off year for CSD. Over the past years, CSD has surged 67 percent.
The most recent spin-offs are not yet included in CSD because its index limits its search to those stocks that "have been spun-off within the past 30 months (but not more recently than six months prior to the applicable rebalancing date)," according to Guggenheim.
Three sectors – energy, industrials and discretionary – combine for almost two-thirds of the ETF's weight and despite the exceptional returns offered by this ETF, investors are not incurring noticeably higher volatility with CSD. CSD's beta is 0.93 and its standard deviation is only slightly higher than the S&P 500's, according to Guggenheim data.
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