Market cap-weighted exchange traded funds are topping their equal-weight rivals this year, but plenty of smart beta funds are shining bright.
The ETFS Zacks Earnings Large-Cap U.S. Index Fund (NYSEArca: ZLRG) has offered modest out-performance of the S&P 500 since coming to market in late January, but ZLRG is picking up the pace in recent weeks. On Wednesday, ZLRG was one of just 30 ETFs that hit all-time highs.
ZLRG and its small-cap counterpart, the ETFS Zacks Earnings Small-Cap U.S. Index Fund (NYSEArca: ZSML), not only equally weight component stocks, but the two relatively new ETFs also equally weight sectors in an attempt to help provide greater diversification and better returns. [ETF Securities Expands Equity ETF Lineup With Two More New Funds]
ZLRG tracks the Zacks Earnings Large-Cap U.S. Index, but there is much more to this index than equal weighting. The index “reviews the amount of non-cash components, known as accruals, included in each company’s reported earnings. Only the 10% of firms with the lowest sector-adjusted accruals are eligible,” according to ETF Securities.
ZLRG’s recent performance is made all the more impressive when considering the bulk of the ETF’s top 10 holdings hail from the lagging industrial sector. On that note it should be noted that no stock accounts for more than 2.1% of the ETF’s weight and with 16 sectors and industries garnering weights of just over 6% apiece, ZLRG can weather an individual sector’s struggles.