15 Of 425 US Equity ETFs Earning Alpha

July 03, 2014

A first-half roundup of risk-adjusted outperformance—and underperformance—for U.S. equity ETFs.

Midway through 2014, snapshot lists are popping up summarizing best and worst performers to date. is no exception, with links to best- and worst-performing ETFs so far.

These lists measure returns—what you would have made if you bought on date X and sold on date Y.

The other way to think about outperformance is risk-adjusted returns, also known as “alpha.” Alpha is a relative concept in that it requires comparison—outperformance relative to what, in other words.

At, we compare each ETF’s performance with a benchmark that’s pretty darn specific yet plain vanilla. For a small-cap value ETF, for example, we’ll use a plain-vanilla small-cap value benchmark. The benchmark can be thought of as “the market” for that fund’s particular space.

Alpha accounts for the risk that the ETF takes relative to the market. If the ETF takes a lot more risk by loading up on small-caps or on volatile stocks, for example, it might not earn alpha even if its returns are higher than the market.

Most funds don’t produce alpha at all—or at least alpha that’s statistically significant. In the 425 U.S. equity ETFs (with one year of history; excluding leveraged and inverse securities), only 24 had alpha, and nine of these were for underperformance. Alpha does cut both ways, after all.

Following is the list of funds with alpha at the midyear point. I’m using a one-year look-back here, not six months, so this snapshot includes the second half of 2013.

Alpha table



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