Inside’s Total Market ETF Revamp

A look at's powerful revamping of its classification of U.S. total market ETFs.

Director of Research
Reviewed by: Elisabeth Kashner
Edited by: Elisabeth Kashner made a rare classification change earlier this week. We made investors' lives easier by opening up the Total Market segment to include all funds that select securities from a country's entire stock market, rather than from a particular size, style, or sector.


We used to put highly specialized funds like the 29-stock Stock Split Index Fund | (TOFR), and First Trust IPO (FPX | A-51) into their own report, in a segment we called Alpha-Seekers. We saved alpha-seekers for funds with narrow portfolios, ones that didn't look at all like the overall equity market. The evolution of ETFs has made us change our minds.


Issuers started launching lots of strategy ETFs—funds that are tilted towards fundamentals, or momentum, or that combined several factors all at once. Some of these funds, like the FlexShares Morningstar U.S. Market Factor Tilt Index Fund (TILT | A-83), with its 2,366 holdings (as of Feb. 1, 2015), hew pretty close to total market exposure, while others like the Vident Core U.S. Equity ETF (VUSE | B-68) take more extreme bets, featuring, for example, a weighted average market cap less than one-seventh the size of the overall U.S. equity market.


In short, the line between alpha seekers and total market had grown blurry. It was time for to evolve along with the marketplace.


So we opened up the total market segment (here's the U.S version) to all funds that don't divide the market by size and style, sector, or dividends. The result is that investors can now compare a huge array of funds side by side on


All The Little Horses

Two funds that seek out securities that find ways to return cash to shareholders, whether directly by dividend payments or indirectly by non-taxable share buybacks—the PowerShares Buyback Achievers Portfolio (PKW | A-92) and the WisdomTree Total Dividend Fund (DTD | A-90)—now sit side by side in our U.S. Total Market Equity report. It's now very easy to see that the cap-weighted PKW has a price/earnings ratio of 16.34, a full three points lower than DTD's, while DTD's portfolio yield of 2.82 percent is twice PKW's 1.40 percent. Good to know.


Even better is the ability to compare on a single page, funds that use a similar strategy. Now we can see the full range of portfolio tilts in the copycats, fundamentals, and momentum-seeking funds.


Definitely check it out.


Copycat Funds

Five ETFs use Securities and Exchange Commission data (form 13-F) to select and weight securities held by the so-called "smart money"—meaning top hedge fund managers and corporate insiders. We call these "copycat" funds, as they copy other investors. All five copycats hold narrow portfolios, with no more than 100 stocks at a time. But the similarities stop there, as you'll see in the table below.


TickerFund NameSelectionWeightingWeighted Average Market CapP/EP/BDividend YieldNumber of HoldingsOne Year Total Returns (NAV)
KNOWDirexion All Cap Insider SentimentProprietaryTiered$33.92 B1.142.661.3%9819.85%
ALFAAlphaClone Alternative AlphaProprietaryTiered$56.62 B47.963.291.0%8012.93%
NFOGuggenheim Insider SentimentProprietaryEqual$17.0 B14.12.352.2%1008.76%
GURUGlobal X GuruCommitteeEqual$49.94 B24.412.890.9%656.83%
IBLNDirexion iBillionaireProprietaryProprietary$82.09 B23.73.091.0%29 


The Direction All Cap Insider Sentiment ETF's (KNOW | B-70) methodology returned more than twice what the Guggenheim Insider Sentiment ETF's (NFO | B-39) did. Apparently, the past 12 months were a great time to go all-in on your rivals' best ideas, rather than hedging your bets by equal weighting. Sometimes it really pays to do your homework. I'm glad we've made it easier for you to find all this data in one place.



The 10 U.S. total market fundamental funds have one thing in common: They all use financial statement data like earnings yield, dividend payout ratios, revenue, or book value to select and/or weight constituents. Financial statements offer many views of a firm's operations, so it's no surprise that we see great variability in their portfolios or their returns.


Nor is it a surprise that the newly integrated funds—the old alpha-seekers like the PowerShares Buyback Achievers Portfolio (PKW | A-92), the Market Vectors Morningstar Wide Moat ETF (MOAT | A-45) and the Guggenheim Raymond James SB-1 Equity ETF (RYJ | C-41)—cluster at the top and the bottom of the one-year total return distribution.


TickerFund NameSelectionWeightingGoodness-of-fit vs. MSCI USA IMIBeta vs. MSCI USA IMIWeighted Average Market CapP/EP/BDividend YieldNumber of HoldingsOne Year Total Returns (NAV)
PKWPowerShares Buyback AchieversShare BuybacksMarket Cap0.940.97$78.94 B16.343.341.40%21518.00%
EXTWisdomTree Total EarningsEarningsEarnings0.990.98$126.19 B16.952.391.98%141916.33%
FNDBSchwab Fundamental U.S. Broad MarketFundamentalFundamental0.980.95$103.01 B20.142.382.21%151116.16%
VLUEiShares MSCI USA Value FactorMarket CapFundamental0.970.97$118.61 B17.322.142.13%62816.14%
VLUSPDR S&P 1500 Value TiltMarket CapFundamental0.980.97$111.6 B18.772.132.13%145115.65%
BFORALPS Barron's 400FundamentalEqual0.911.14$21.51 B16.342.631.33%39711.26%
MOATMarket Vectors Morningstar Wide MoatProprietaryEqual0.770.85$80.81 B18.42.92.23%218.67%
WMWELEMENTS Morningstar Wide Moat Focus Total Return ETNProprietaryEqual0.770.86$80.81 B18.42.92.23%218.32%
RYJGuggenheim Raymond James SB-1 EquityProprietaryEqual0.841.16$10.36 B49.162.061.28%1496.76%
DGROiShares Core Dividend GrowthFundamentalDividend0.950.91$102.44 B19.053.52.38%333 


If you're in the market for an unconstrained, fundamental U.S. equity fund, you should be looking at all the options, from the narrow to the broad. Our newly expanded total market segments make this information-gathering easy. has set you up to ask the right questions, such as whether firms that repurchase their securities are poised to outperform ones that receive analyst recommendations, or whether WisdomTree Total Earnings' (EXT | B-90)  higher earnings will drive returns higher than Schwab Fundamental U.S. Broad Market's (FNDB | A-87) sales, cash flow, dividends and buybacks might.



What's even better about showing all the momentum funds together is that now you can easily see how much their portfolio construction matters. For example, narrowing the selection universe to NASDAQ-only stocks cost PowerShares DWA NASDAQ Momentum Portfolio (DWAQ | B-27) 10 percent over the 12 months to Feb. 13, 2015.


The three funds that really do draw from the total U.S. market all posted mid-teen percent returns over the past 12 months. The surprising thing is that the two highly targeted funds, the 122-stock iShares MSCI USA Momentum Factor ETF (MTUM | A-61) and the 100-holding PowerShares DWA Momentum Portfolio (PDP | B-56), didn't differ overmuch from the broader 1,325-share SPDR S&P 1500 Momentum Tilt ETF (MMTM | B-87).


That might not be the case in the coming year, of course, but it's fascinating to see that, over the past 12 months, PDP investors could have gotten virtually identical returns with substantially less risk in the lower-beta and better-diversified MMTM.


The clear grouping of the total U.S. market momentum funds allows investors to ask critical questions, to determine why MTUM and PDP are so different, or to see whether the broader-based MMTM offers a better future risk-adjusted return. Hint: MTUM selects by recent risk-adjusted return, while PDP picks winners by industry as well as by security-specific returns, without regard to risk.


Did I mention that low volatility funds have been on a tear these past 12 months?


TickerFund NameSelectionWeightingGoodness-of-fit vs. MSCI USA IMIBeta vs. MSCI USA IMIWeighted Average Market CapP/EP/BDividend YieldNumber of HoldingsOne Year Total Returns (NAV)
MTUMiShares MSCI USA Momentum FactorMomentumMomentum0.891.13$137.18 B22.754.421.36%12216.34%
MMTMSPDR S&P 1500 Momentum TiltMarket CapMomentum0.981.06$130.18 B20.772.971.76%132514.49%
PDPPowerShares DWA MomentumMomentumMomentum0.881.12$42.89 B27.335.270.86%10014.24%
DWAQPowerShares DWA NASDAQ MomentumMomentumMomentum0.721.4$33.11 B35.255.560.33%1004.50%



Choosing an ETF is no small task when you have to sift through 1,663 choices. I hope has made the task a wee bit easier by helping you see all the total market funds in a single segment report.

Elisabeth Kashner is FactSet's director of ETF research. She is responsible for the methodology powering FactSet's Analytics system, providing leadership in data quality, investment analysis and ETF classification. Kashner also serves as co-head of the San Francisco chapter of Women in ETFs.