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This is the second article in my series of three articles where I will be looking for ETFs, which have significantly outperformed the market, and have outperformed competing ETFs but still have low assets. To get my list of "unknown ETFs" I used the Fidelity ETF screener to find ETFs that met my goals of outperformance, but also key criteria like bid/ask spread, and how long the ETF has been trading.

Criteria:

Leverage/Inverse: Exclude Leveraged & Inverse

ETF Type: ETF

Asset Class: Equity

Net Assets: < $80 Million

Price Performance YTD: >30% [SPY Performance YTD 21.31%]

Volume 30-Day average: Between 5K and 40K

Average monthly bid/ask spread: <= 0.25%

Inception Date: Before 4/14/2013 [Have at least 6-month history]

Results

Using the criteria above I found 14 ETFs in my final screen, which are shown in the table below. After looking at each ETF in the table and comparing it to competing ETFs I decided for this artile I would focus on the PowerShares Dynamic Industrials Sector Portfolio ETF (PRN).

(click to enlarge)

Unknown ETF: PowerShares Dynamic Industrials Sector Portfolio ETF

Inception Date: 10/12/2006

Assets: $72.4 million

What makes fund Unique?

When looking at PRN I found that it is a well-diversified portfolio of industrial companies with the top 10 holdings making up only 25.26% of the portfolio. In addition to having its underlying holding diversified, PRN is fairly diversified by market cap as well. The following table shows a comparison of the market cap breakdown of PRN compared to competing ETFs in the industrial space, which include the Industrial Select Sector SPDR ETF (XLI), the First Trust Industrials AlphaDEX ETF (FXR), and the PowerShares S&P SmallCap Industrials Portfolio ETF (PSCI). The data in that chart shows that out of the these four ETFs, PRN is the most evenly diversified by market cap when compared to XLI, which has a high allocation to large-cap stocks, PSCI which has a large allocation to small-cap stocks, and FXR, which has a large allocation to mid-cap stocks.

PRN

XLI

FXR

PSCI

Large-Cap

27.15%

81.27%

22.90%

0.00%

Mid-Cap

37.31%

17.93%

56.76%

13.54%

Small-Cap

35.54%

0.22%

20.30%

86.45%

The first chart below shows the holdings of the ETF with weight and industry classification for each, with the data coming from the PRN website, and industry classification came from Finviz.com. The second chart below I created to show the industry allocation broken down into the six main industries that the ETF holds.

DAL

Delta Air Lines Inc

2.81%

Major Airlines

LUV

Southwest Airlines Co

2.77%

Regional Airlines

BA

Boeing Co/The

2.63%

Aerospace/Defense Products & Services

ROK

Rockwell Automation Inc

2.49%

Diversified Machinery

CMI

Cummins Inc

2.46%

Diversified Machinery

HON

Honeywell International Inc

2.45%

Diversified Machinery

IR

Ingersoll-Rand PLC

2.43%

Diversified Machinery

NOC

Northrop Grumman Corp

2.43%

Aerospace/Defense - Major Diversified

PCAR

PACCAR Inc

2.41%

Trucks & Other Vehicles

GD

General Dynamics Corp

2.39%

Aerospace/Defense Products & Services

LLL

L-3 Communications Holdings Inc

2.37%

Aerospace/Defense Products & Services

DOV

Dover Corp

2.36%

Diversified Machinery

RTN

Raytheon Co

2.30%

Aerospace/Defense - Major Diversified

JEC

Jacobs Engineering Group Inc

2.29%

Technical Services

ADT

ADT Corp/The

2.27%

Security & Protection Services

COL

Rockwell Collins Inc

2.21%

Aerospace/Defense Products & Services

TW

Towers Watson & Co

1.77%

Management Services

KFY

Korn/Ferry International

1.64%

Staffing & Outsourcing Services

LCC

US Airways Group Inc

1.58%

Major Airlines

ENS

EnerSys Inc

1.54%

Industrial Electrical Equipment

HY

Hyster-Yale Materials Handling Inc

1.54%

Trucks & Other Vehicles

NCI

Navigant Consulting Inc

1.51%

Management Services

UHAL

AMERCO

1.49%

Rental & Leasing Services

MAN

Manpowergroup Inc

1.48%

Staffing & Outsourcing Services

FSS

Federal Signal Corp

1.46%

Auto Parts

GK

G&K Services Inc

1.43%

Personal Services

WNC

Wabash National Corp

1.43%

Trucks & Other Vehicles

AAON

AAON Inc

1.42%

General Building Materials

BEAV

B/E Aerospace Inc

1.41%

Aerospace/Defense Products & Services

FIX

Comfort Systems USA Inc

1.41%

General Contractors

ALK

Alaska Air Group Inc

1.41%

Regional Airlines

OSK

Oshkosh Corp

1.40%

Trucks & Other Vehicles

HII

Huntington Ingalls Industries Inc

1.40%

Aerospace/Defense Products & Services

RPXC

RPX Corp

1.40%

Business Services

SKYW

SkyWest Inc

1.38%

Regional Airlines

CGX

Consolidated Graphics Inc

1.38%

Business Services

SWFT

Swift Transportation Co

1.37%

Trucking

ITT

ITT Corp

1.37%

Diversified Machinery

IEX

IDEX Corp

1.37%

Diversified Machinery

AGCO

AGCO Corp

1.36%

Farm & Construction Machinery

CIR

CIRCOR International Inc

1.36%

Industrial Equipment & Components

USTR

United Stationers Inc

1.36%

Wholesale, Other

ODFL

Old Dominion Freight Line Inc

1.36%

Trucking

AIR

AAR Corp

1.36%

Major Airlines

WBC

WABCO Holdings Inc

1.36%

Auto Parts

ACM

AECOM Technology Corp

1.35%

Technical Services

URS

URS Corp

1.34%

Technical Services

UNF

UniFirst Corp/MA

1.33%

Textile - Apparel Clothing

BWC

Babcock & Wilcox Co/The

1.32%

Diversified Machinery

TRN

Trinity Industries Inc

1.32%

Railroads

ICFI

ICF International Inc

1.32%

Management Services

ATK

Alliant Techsystems Inc

1.29%

Aerospace/Defense Products & Services

ALG

Alamo Group Inc

1.29%

Farm & Construction Machinery

XLS

Exelis Inc

1.29%

Aerospace/Defense Products & Services

RRD

RR Donnelley & Sons Co

1.26%

Business Services

ESL

Esterline Technologies Corp

1.25%

Aerospace/Defense Products & Services

QUAD

Quad/Graphics Inc

1.24%

Business Services

RJET

Republic Airways Holdings Inc

1.24%

Regional Airlines

ABFS

Arkansas Best Corp

1.22%

Trucking

EGL

Engility Holdings Inc

1.12%

Technical Services

(click to enlarge)

Competing ETFs

There are three competing ETFs in the industrial space, which are extremely popular with investors, but have underperformed PRN since its inception. The reason I chose to compare PRN to XLI is that XLI includes all the large-cap big name industrial companies, and is the most popular ETF among investors looking for exposure to industrials. The reason I chose to compare PRN to FXR, was FXR selects its underlying holdings by using fundamental criteria, and weighs stocks by those fundamentals rather than a traditional market-cap weighted ETF. Finally, I chose to compare PRN to PSCI even though PSCI has fewer assets than PRN because of the decent size allocation to small-cap stocks that PRN has, so I thought it would be a good idea to include PSCI for comparison.

The chart below from Yahoo Finance shows that since its inception PRN has significantly outperformed the market in general as well as XLI. This outperformance has not been just a small outperformance it has been very large, with PRN doubling the return of the SPY and XLI since its inception.

(click to enlarge)

The chart below shows the comparison of PRN to the SPY, XLI and FXR since the inception date for FXR was after that of PRN. The data shows that PRN once again handily outperformed all three ETFs, with an outperformance of about double that of FXR.

(click to enlarge)

The final chart below shows the comparison of PRN to all three industrial ETF competitors, and the SPY, since the inception of PSCI. The data shows that PRN again outperformed all the ETFs but PSCI did close the gap and had higher returns than XLI or FXR.

(click to enlarge)

Closing thoughts

In closing, I believe PRN is a good option to play the industrial sector in a diversified way. With the diversified exposure to mid-cap stocks and small-cap stocks it is a matter of preference and risk tolerance as to which route to choose, PRN with its diversified portfolio with a small and mid-cap tilt, XLI with its large-cap focus, or FXR with its fundamentally screened and weighted focus. For someone who can handle the risk of mid- and small-cap stocks, and is bullish on the future of companies producing durable goods, I believe PRN is the perfect candidate.

Disclaimer

Source: An Unknown ETF Investors Should Know About: Part 2