Using SPY as the investable S&P 500, we identified 12 ETFs that generated better total return with lower volatility than the S&P 500 over 3 years and 5 years.
That is generally seen as a good thing - securities that take you further with a less bumpy ride.
The ETFs that made that cut are only 12 out of the many hundreds of available equity ETFs.
Past is not prolog, but as far as the past goes, here are the ETFs:
|Guggenheim S&P 500 Eq Wt Cons Staples||(RHS)|
|Health Care Select Sector SPDR||(XLV)|
|iShares Core S&P 500||(IVV)|
|iShares S&P 500 Growth||(IVW)|
|iShares US Consumer Goods||(IYK)|
|iShares US Healthcare||(IYH)|
|iShares US Pharmaceuticals||(IHE)|
|PowerShares Buyback Achievers||(PKW)|
|PowerShares Dynamic Consumer Staples||(PSL)|
|SPDR S&P 500 Growth ETF||(SPYG)|
|Vanguard Health Care ETF||(VHT)|
|WisdomTree Earnings 500||(EPS)|
We call these "NorthWest Quadrant" ETFs, because in a scatter diagram (shown below) of volatility and return, they all fall in the upper left quadrant of the chart -- the Northwest Quadrant.
The charts plot volatility on the horizontal axis and return on the vertical axis.
Here are scatter diagrams showing their risk/reward plots (blue dots) versus SPY (the orange dot) for both 3 years and 5 years.
Here is their type and yield as of Dec. 31, 2013.
Notice that they all have a trailing yield lower than SPY.
Consumer defensive (as defined by Morningstar) and healthcare dominate. Large-cap blend had more winners than large-cap growth.
Note also that IVV, (the iShares S&P 500 tracking ETF), beat out SPY, but that was only by a "hair".
This table provides their:
- Total returns,
- Sharpe Ratios (return in excess of "risk free rate" divided by standard deviation),
- Sortino Ratios (same as Sharpe, but only considering downside volatility)
- Upside and Downside Capture Ratios (measured versus the S&P 500 -- more upside capture than downside capture is best).
Here is how they are starting off 2014. Each ETF is plotted year-to-date for performance versus SPY by dividing the ETF's performance by that of SPY:
The defensives are not projected by most analysts to do as well relative to the broad market as they did in 2013, because the economy is expected to do better.
Healthcare is a mixed bag, with so many uncertainties surrounding ObamaCare.
The BuyBack Achievers, WisdomTree Earnings 500, and the two large-cap growth ETFs may be more predictable winners if the market does in fact rise for 2014.
If the market has a problem rising, then the defensives would probably fare well.
Disclosure: QVM has positions in SPY and XLV as of the creation date of this article (January 15, 2014). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. QVM has positions in SPY and XLV as of the creation date of this article (January 15, 2014). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.
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