Smart-beta ETFs don’t always deliver outperformance. Sometimes, however, they do. And spectacularly, too.
In the emerging market segment, two fundamental strategies—funds that select and weight securities based on fundamentals—have delivered roughly 70% more returns than plain-vanilla, popular funds in this segment in the past year.
The PowerShares FTSE RAFI Emerging Markets Portfolio (PXH) and the Schwab Fundamental Emerging Markets Large Co. Index ETF (FNDE) are each up more than 33% in 12 months. That’s about 14 percentage points more—or roughly 70% more—in returns than the three leading emerging market cap-weighted ETFs in the same period:
- iShares Core MSCI Emerging Markets ETF (IEMG) is up 19%
- Vanguard FTSE Emerging Markets ETF (VWO) is up 20%
- iShares MSCI Emerging Markets ETF (EEM) is up 19%
The chart below shows that performance difference:
Chart courtesy of Stockcharts.com