With 2011 behind us, today we highlight the U.S. large cap ETF space in the context of returns from last year covering the large cap “core” space, encompassing various index weighting methodologies such as market capitalization (price times shares outstanding), equal weighting, fundamental/quantitative weighting, earnings weighting, dividend weighting, and revenue weighting. [What are ETFs? — Know Your Indices]
On the whole, alternatives to market cap such as fundamentally and quantitative weighting methods underperformed the benchmarks last year with the exception being that of dividend weighted funds. DLN (WisdomTree Large Cap Dividend) for instance was up 6.36% last year, and demonstrated notable out-performance to benchmarks such as the S&P 500 — SPY (SPDR S&P 500) -0.20%, IVV (iShares S&P 500), -0.23%, VOO (Vanguard S&P 500 -0.21%) — and the Russell 1000 (IWB (iShares Russell 1000, -0.70%). Other market cap weighted index ETFs including VV (Vanguard Large Cap) and SCHX (Schwab U.S. Large Cap) were down 0.52% and 0.73% respectively.
The equal weighted RSP (Rydex S&P 500 Equal Weight) lost 0.77%, and the fundamentally based PRF (PowerShares FTSE RAFI U.S. 1000) and FEX (First Trust Large Cap Core AlphaDEX) lost 0.77% and 0.95%, respectively.
A second fund from WisdomTree that is based on earnings and not dividends is EPS (WisdomTree Earnings 500), and it fell 0.59% last year while the revenue weighted version of the S&P 500, RWL (RevenueShares Large Cap) lost 0.89%.
Finally, another fundamentally based ETF, PXLC (PowerShares Fundamental Pure Large Core) was roughly unchanged on the year, down 0.04%.
Noting that all of the index products mentioned were down in 2011 with the exception of DLN, it is clear to us that investors reaching for yield and some degree of stability in higher yielding equities during a largely flat year of U.S. large cap returns (albeit with significant volatility along the way), helped create a premium for dividend based ETFs in 2011 and were rewarded nicely in comparison to the benchmarks.
WisdomTree Large Cap Dividend