This Fundamentally Weighted ETF Enjoyed a Big Quarter

ETF Trends

Fewer than 50 ETFs and ETNs are sitting on second-quarter gains of 10% or more. With just one day left in the quarter, it is safe to say that number will not change too much. Strip out inverse and leveraged products and the “at least 10% up” club falls drastically in membership.

One member, the PowerShares Fundamental Pure Mid Growth Portfolio (PXMG) , serves as a reminder that there advantages to alternatives to traditional market cap-weighted ETFs. PXMG, which debuted in March 2005, is one member of an extensive lineup of PowerShares ETFs that track fundamentally-weighted indexes constructed by Research Affiliates. [ETF Sponsors Focus on Alternative Indices]

PXMG tracks the RAFI Fundamental Mid Growth Index, which is “comprised of common stocks of ‘mid growth’ US companies, including real estate investment trusts (REITs), from a universe comprised of the 2,500 largest US companies based on fundamental weight,” according to PowerShares, the fourth-largest U.S. ETF sponsor.

PXMG highlights the fact that a move away from cap-weighted funds can sometimes serve investors well. The ETF is up 17.2% this quarter and 29.1% over the past year, creating staggering performance differentials with the rival iShares Russell Midcap Growth Index Fund (IWP) . IWP is up just 3.8% in the second quarter.

PXMG is well distributed at the sector level and could be a credible option in the event of a legitimate cyclical rotation. Financial services and energy names combine for a third of the fund’s weight while consumer discretionary and technology combine for almost 26%. Top-10 holdings include hard disk driver maker Western Digital (WDC), fertilizer producer Mosaic (MOS) and energy exploration firm Noble Energy (NBL). [Cyclical ETFs Can Perform When Rates Rise]

Home to 107 stocks, PXMG is not the biggest mid-cap ETF out there as it has just $80.3 million in assets under management. Although the fund has average daily volume just 4,700 shares, it rarely trades at an excessive discount or premium to its net asset value. In fact, from the second quarter of 2012 through the end of the first quarter of 2013, the mid-point of PXMG’s bid/ask only traded at a discount to NAV of 0.5% to 0.99% one time, according to PowerShares data.

PXMG currently resides 13.9% above its 200-day moving average and 6.2% below its 52-week high. The ETF has an annual expense ratio of 0.39%.

PowerShares Fundamental Pure Mid Growth Portfolio

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PXMG

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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