What’s the Best U.S. Total Market ETF? Style? Sector?

By Matthew Hougan

What's the best U.S. total market ETF?

If you're looking at January performance, the answer is clear: the ELEMENTS Benjamin Graham Total Market ETN (BVT).

And not just by a little. BVT posted a positive 6.44% return in January, outpacing the next closest competitor (the iShares Russell 3000 Growth ETF, IWZ) by more than 11%.

I'm unable to find real-time data on what stocks the Elements ETN tracks and how it achieved its remarkable performance. But even if you look past BVT, you can see that the spread of performance for the various total market ETFs is significant.

Name	Ticker	Expense Ratio	Assets ($US millions)	January 2009	2008	2007
Elements BG Total Market	BVT	0.75%	2.4	6.44	N/A	N/A
iShares Russell 3000 Growth	IWZ	0.25%	335.7	-5.06	-38.62	11.02
Vanguard Total Stock Market	VTI	0.07%	8,443.3	-8.05	-36.68	5.37
SPDR Total Market (DJW 5000)	TMW	0.20%	129.3	-8.18	-36.68	5.22
iShares Russell 3000	IWV	0.20%	2663.6	-8.37	-37.14	4.57
iShares DJ US Index	IYY	0.20%	460.7	-8.46	-37.06	5.78
iShares S&P 1500 Index	ISI	0.20%	260.3	-8.89	-36.47	4.50
iShares Russell 3000 Value	IWW	0.25%	316.3	-11.56	-36.00	-1.38

This raises an absolutely critical point: the choice of ETFs matter. And once you move beyond total market funds into more specific styles or sectors, the choice of ETFs matters even more.

The table below compares the January returns of the top and bottom performing ETFs for each of the 11 size/style boxes. The variance in one-month returns ranges from 3.95% (for Mid-Cap Growth ETFs) to 28.09% (for Small-Cap Value ETFs). In half of the categories, at least one ETF delivered a positive return, which is impressive when you consider that January was the worst month for U.S. equities in history.

Asset Class	Fund	Ticker	Return	Difference
Total Market	ELEMENTS BG	BVT	6.44%	18.00%
	iShares Russell 3000 Value	IWM	-11.56%
Large Cap	SPA MarketGrader LC	SZG	1.49%	11.70%
	PowerShares FTSE RAFI 1000	PRF	-10.21%
Large Cap Growth	Clymr/Ocean Tomo Growth	OTR	1.05%	13.10%
	Vanguard Mega 300 Growth	MGV	-12.05%
Large Cap Value	Vanguard Mega 300 Value	MGK	-4.89%	11.55%
	Rydex S&P 500 Pure Value	RPV	-16.44%
Mid Cap	SPA MarketGrader 200	SNB	1.17%	10.54%
	Claymore/Sabrient Insider	NFO	-9.37%
Mid Cap Growth	SPDR DJ MidGrowth	EMG	-3.66%	3.95%
	First Trust IPOX-100	FPX	-7.61%
Mid Cap Value	Claymore/Clear Spinoff	CSD	-4.07%	11.64%
	Rydex S&P 400 Pure Value	RFV	-15.71%
Small Cap	SPA MarketGrader Sm100	SSK	-5.24%	8.86%
	RevenueShares SmallCap	RWJ	-14.10%
Small Cap Growth	Pshares NASDAQ NextQ	PNXQ	-1.31%	9.21%
	Rydex S&P 600 Pure Growth	RZG	-10.52%
Small Cap Value	ELEMENTS BG Small	BSC	5.87%	28.09%
	Rydex S&P 600 Pure Value	RZV	-22.22%
Micro Cap	Claymore/Sabrient Stealth	STH	-7.76%	8.40%
	FT DJ Sel MicroCap	FDM	-16.16%

The same is true if you look at individual sectors. Looking at the eleven core sectors, the difference between the top and bottom performing funds ranges from 1.79% (for Telecom funds) to a stunning 25.89% (for Financial ETFs) ... an incredible result in a single month.

Asset Class	Fund	Ticker	Return	Difference
Basic Materials	Vanguard Materials	VAW	-7.38%	6.38%
	First Trust Material Alpha	FXZ	-13.76%
Consumer Goods	Rydex S&P EW Cons. Stp.	RHS	-0.53%	17.15%
	Claymore/Robb Global Lux	ROB	-17.68%
Consumer Services	PowerShares Media	PBS	-3.32%	9.36%
	Rydex S&P EW Cons. Disc.	RCD	-12.68%
Energy	SPDR Oil&Gas Equip&Serv	XES	2.57%	10.15%
	PowerShares WH Progr Ener	PUW	-7.58%
Financial	iShares DJ Broker Dealer	IAI	-9.23%	25.89%
	SPDR KBW Bank	KBE	-35.12%
Healthcare	iShares DJ US Medical Dev.	IHI	3.40%	8.24%
	PowerShares Pharma	PJP	-4.84%
Industrial	iShares DJ Aerospace	ITA	-2.76%	14.03%
	iShares DJ Transports	IYT	-16.79%
Natural Resources	Market Vectors Gold Miners	GDX	1.03%	13.05%
	PowerShares Water Res.	PHO	-12.02%
Technology	iShares GS Networking	IGN	0.77%	10.21%
	PowerShares Lux Nanotech	PXN	-9.44%
Telecom	PowerShares FTSE RAFI Tel	PRFQ	-6.02%	1.79%
	PowerShares Tele & Wireless	PTE	-7.81%
Utilities	Sel. Sector Utilities	XLU	0.17%	3.67%
	First Trust Util AlphaDex	FXU	-3.50%

With 800 ETFs on the market, it's not enough just to have an opinion about a particular sector or to want to tilt to a particular size or style. It's critical to evaluate each of the ETFs within a given asset class and find the one that most closely reflects your full views on the market.

Comments

[Alan Young:]

Huh? You are picking a winner, and you don't even know what index it tracks? What kind of research is that?

Also, you make no distinction between ETFs and ETNs. ETNs have a credit-risk component which investors should be aware of. Add to that the miniscule asset base--implying lack of liquidity--and I don't see an attractive trade here.

Feb 19 08:32 AM

[Scott's Inv...:]

Some of the 'research' Hougan posts on here is absolutely worthless. I had to write an article refuting one of his articles that showed little or no research. In the end, this particular article concludes that there are a lot of ETFs on the market so choose carefullly!! Really?! How about analyzing some of the ETFs in-depth and offering us YOUR opinion. Oh wait, that's right, your research consists of: 'I'm unable to find real-time data on what stocks the Elements ETN tracks and how it achieved its remarkable performance.'

Feb 19 09:11 AM

[Ron Rowland:]

You better check your data. This ETF only traded on six days in January. Its last trade of 2008 took place on Dec 8, 2008. That is not a typo. If you are calculating performance based on last trade of 2008, then you are basing it on stale data - very stale.

Additionally, the last trade of January took place on 1/23 - again very stale data.

It appears that your "January" return is actually the return between the 12/8 trade of $5.75 and the 1/23 trade of $6.12.

I normally do not put ETFs on deathwatch while they are less than six months old, but I may make an exception for this one.

Feb 19 10:15 AM

[User 301818:]

ARE YOU KIDDING ME....................... TRADES 500 SHARES A DAY

Feb 19 02:37 PM

[SA Editor J...:]

Some nice criticism of this piece - seekingalpha.com/artic... - and especially the author's inclusion of BVT as a 'Total Market' fund

Feb 19 02:57 PM

[User 69976:]

In addition to the valid comments already made, what about that massive expense ration on BVT as compared to the other ETFs, such as VTI. One of the enticing perks to ETFs are their low expense ratios. And I second the comment that the low market cap implies low liquidity...NOT a feature one wants in their investment in THIS environment.

That's the problem with this site. It seems like they'll allow anyone to publish a piece.

Feb 19 03:00 PM

[ETFDesk dot...:]

why not just throw GLD in there too! or maybe some 3x leverages funds...

Feb 19 04:20 PM

[mangy cat:]

deutsche bank issuer is perfectly safe
as were lehman opta etns

Feb 19 05:09 PM

[insuranceguy:]

I can't help but notice the dramatically higher expense ratio. Something is out of whack here. .75% is closer to mutual fund territory than ETF. Why?

Feb 28 05:24 PM