While exchange traded fund investors can track the most prominent market benchmarks, the industry has come out with interesting “enhanced” indexing methodologies that provide actively managed investment strategies in a passive ETF wrapper.

For instance, the PowerShares Dynamic Large Cap Value Portfolio (NYSEArca: PWV) screens for stocks based on investment merit and traditional value characteristics, writes Morningstar fund analyst Alex Bryan. PWV has a 0.59% expense ratio.

PWV tries to improve its risk-adjusted return by including additional screens for price momentum, earnings momentum, quality, management action and value.

“Because it incorporates quality metrics into its portfolio construction process, the fund’s holdings tend to have better profit margins, higher returns on equity, and higher returns on invested capital than many of its value peers,” Bryan said. “These selection criteria also reduce the fund’s exposure to distressed companies, which value funds often overweight.”

Since its inception on March 2005, PWV has outperformed most of its large-value peers. PWV has gained an average annualized 9.9% over the past five years, compared to the 6.5% return from the Vanguard Mega Cap Value Index ETF (NYSEArca: MGV) or the 6.7% rise in the iShares S&P 500 Value Index (NYSEArca: IVE).

“While value stocks tend to outperform over the long run, they often represent companies with relatively high business risk and poor prospects for growth, and they may remain out-of-favor for years,” Bryan said.

For instance, Bryan points out that PWV’s concentrated portfolio can lead to uneven performances, such as in 2009 and 2010 when the fund fell behind 65% and 90% of other large-value funds, respectively.