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S&P sees mixed YTD performance from equity ETFs


With major stock markets outside the US showing weak returns during the first 10 months of 2011, S&P is reporting mixed results from equity ETFs or ETNs, with a majority of them in negative territory.

Year to date through the end of October, there were 192 US-traded ETFs/ETNs with a positive total return, including about nine ETFs that were up more than 10%. In comparison, of the equity ETFs or ETNs that were available for the full period, we found 402 with a negative total return, 186 of which were down more than 10%.

The S&P 500 Index had a positive total return of 1.3% in the first 10 months of 2011, compared to a negative 3.0% for the S&P Global 1200, which includes the S&P 500. Looking outside the US areas with negative total returns include the Japanese S&P/TOPIX 150 (-16%) and the S&P Europe 350 (-8.3%).

Viewed broadly, domestic US ETFs/ETNs fared somewhat better than those with more of an international or global emphasis. Year-to-date, S&P Capital IQ’s MarketScope Advisor (MSA) database shows 163 domestic ETFs/ETNs with a positive total return, while 155 were in negative territory. In comparison, there were only 20 international or global ETFs/ETNS with a total return above 0%, while 234 had a negative return (Note: Some ETFs/ETNs are not classified by region).
In general, total returns should be helped by the inclusion of dividend income. However, the proportion of positive total returns among higher-yielding ETFs/ETNs was similar to that of the entire universe we reviewed. Among the 275 ETFs/ETNs with a 12-month yield of more than 2%, only about 28% of them had a positive total return.

Among the year’s nine top performing ETFs, all of them were classified by S&P Capital IQ as sector ETFs, based on assets they held. This included three Utilities sector ETFs, two Health Care, two Financials, one Consumer Staples, and one Consumer Discretionary. The largest of the top-ranked ETFs (based on market capitalisation), was Utilities Select Sector SPDR Fund (XLU 35 Overweight), at USD4.6 billion, and the smallest was PowerShares Active US Real Estate Fund (PSR 51 Underweight), at USD18 million. Four of the top-performing ETFs had a 12-month trailing yield of at least 3.4%, but two of them had a yield of less than 2%.

Based on S&P Capital IQ Equity Research’s proprietary ETF rankings, two of 2011’s top performing equity ETFs — XLU and iShares Dow Jones US Pharmaceuticals Index Fund (IHE 70 Overweight), currently are receiving an Overall ranking of Overweight. In 2011’s first 10 months, these two ETFs had positive total returns of 15% and 11%, respectively.

S&P Capital IQ Equity Research’s ETF analytical product offers a quantitative ranking methodology that combines input from holdings-based analyses and multivariate analysis of the security, producing output grouped according to Performance Analytics, Risk Considerations and Cost Factors categories. The ETF analysis bubbles up to an Overall S&P ETF ranking (Overweight, Marketweight, or Underweight) of an ETF security relative to all other equity ETFs on which we have an Overall ranking.

IHE is also receiving a relatively favorable appraisal in each of the three primary ranking categories. Meanwhile, XLU had an Underweight ranking in the Performance Analytics areas, but an Overweight ranking in the Risk Considerations and Cost Factors categories.

Among the seven other top-performing ETFs in 2011’s first 10 months, S&P has an Overall ranking of Marketweight on five of them, and an underweight appraisal on the remaining two. The Marketweights include Vanguard Utilities Index Fund; ETF Shares (VPU 74 Marketweight); iShares Dow Jones US Utilities Sector Index Fund (IDU 85 Marketweight); iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ 44 Marketweight); PowerShares Dynamic Pharmaceuticals Portfolio (PJP 27 Marketweight); and First Trust Consumer Staples AlphaDex Fund (FXG 24 Marketweight). The Underweights are PowerShares Dynamic Retail Portfolio (PMR 22 Underweight) and PSR.

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