In this case, reducing or eliminating the effect on the portfolio of the biggest names in the sector proved beneficial. In particular, both funds benefited from having less Apple Inc. (Nasdaq: AAPL), which has fallen 32 percent over the past year.
Moving forward, however, there's no reason to presume that reducing the effect of large-cap tech companies will prove a fruitful strategy.
AAPL's size, combined with its atrocious price performance over the past year, seriously hampered the performance of many U.S. technology ETFs. But large single-name exposure is a two-way street.
Among eight alternative energy ETFs, two earned more than 30 percentage points of performance alpha—largely on the back of a couple big names.
The Tesla Effect
The Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) and the First Trust Nasdaq Clean Edge Green Energy ETF (Nasdaq: QCLN) have each returned more than 50 percent over the past year and, in the process, earned more than 30 percent alpha relative to the broad "global renewable energy" market.
The outperformance is largely attributable to excess exposure to a few strong-performing stocks.
In particular, each fund has hefty exposure to Tesla—which is up more than 250 percent over the past year. Strong performers CREE (NasdaqGS: CREE) and solar power generator SunEdison (NYSE: SUNE) (up 300 percent) also had sizable effects on each portfolio, given their respective returns of 150 percent-plus and 300 percent. In the end, extra exposure to these companies helped GEX and QCLN exhibit impressive alpha relative to their broad market.
Other funds earned alpha that can be attributed to their nuanced strategies, as opposed to single-name exposure.
