If you want to own an exchange-traded fund (ETF) that tracks the S&P 500, then you will probably outperform most active money managers over the long haul. What if you could take it one step further and invest in an ETF that consistently beats the S&P 500? Here are three ETFs that do just that. (To learn more, see: The Benefits of ETF Investing.)
3 ETFs That Beat S&P 500
PowerShares S&P 500 Low Volatility (SPLV)
Purpose: Tracks the lowest volatility stocks in the S&P 500, which should lead to SPLV holding up better than peers during bear markets.
Net Assets: $6.74 billion
Expense Ratio: 0.25%
Year-to-Date (YTD) Performance: 10.86%
1 Year Performance: 12.14%
Inception Date: May 5, 2011
Performance Since Inception Date: 71.55% (versus 61.92% for S&P 500)
Dividend Yield: 2.00%
Average Daily Trading Volume (past three months): 2.3 million
SPLV has a low expense ratio and diversification is another obvious advantage. If you’re not comfortable with ETF investing but you would still like to invest in low volatility stocks, then consider going through S&P 500 stocks and searching for low beta stocks. If a stock sports a beta below 1.00, then it’s less volatile than the market.
Guggenheim S&P 500 Equal Weight (RSP)
Purpose: Tracks the S&P 500 Equal Weight Index Total Return, which has beaten the S&P 500 by at least two percentage points each of the past 10 years.
Net Assets: $9.6 billion
Expense Ratio: 0.40%
YTD Performance: 9.08%
1 Year Performance: 3.77%
Inception Date: April 24, 2003
Performance Since Inception Date: 198.74% (versus 125.21% for S&P 500)
Dividend Yield: 1.55%
Average Daily Trading Volume: 837,000
By offering equally-weighted investment exposure to the S&P 500, RSP has been able to outperform the index. For instance, if Apple Inc. isn’t performing well, it won’t have much consequence because there are 504 stocks being tracked in equal measure. There are 505 companies in the S&P 500 Index right now, despite the name. (For more, see: The Best ETFs for Your 401(k).)
ProShares S&P 500 Dividend Aristocrats (NOBL)
Purpose: Tracks the S&P 500 Dividend Aristocrats Index, which tracks S&P 500 companies that have raised their dividend for at least 25 consecutive years. The fund holds a minimum of 40 stocks and is equally weighted. No single sector is allowed to make up more than 30% of the index.
Net Assets: $2.1 billion
Expense Ratio: 0.35%
YTD Performance: 12.77%
1 Year Performance: 10.36%
Inception Date: October 10, 2013
Performance Since Inception Date: 35.55% (vs. 27.41% for S&P 500)
Dividend Yield: 1.82%
Average Daily Trading Volume: 388,000
If the best way to beat the market is via dividend investing, then NOBL should be on your watch list. Not only are these holdings dividend-paying companies, they are some of the most reliable ones in existence. The 0.35% expense ratio is also lower than the ETF average of 0.46%.
Top 10 Holdings:
McCormick & Company, Incorporated (MKC)
Cincinnati Financial Corp. (CINF)
AT&T, Inc. (T)
CR Bard Inc. (BCR)
The Clorox Company (CLX)
Consolidated Edison, Inc. (ED)
SYSCO Corporation (SYY)
Cintas Corporation (CTAS)
Medtronic, Inc. (MDT)
Kimberly Clark Corp. (KMB)
The Bottom Line
The three ETFs listed above have all outperformed the S&P 500 since their inception. The challenging part will be choosing one, but that should relate to your investment goals. If one of these ETF were to take a hit during a bear market, it could be seen as an opportunity to add to your position for longer-term gains. (For more, see: SDOG vs. NOBL: Comparing Dividend-Oriented ETFs.)
Dan Moskowitz does not have any positions in the stocks or ETFs mentioned in this article.