With stocks off to a glum start to 2016, the mediocre performance turned in by the S&P 500 last year seems like a distant-though-enticing memory. One of the anomalies spotted among investment factors last year was the outperformance of the growth factor relative to the quality and value factors.
The growth factor can include elements such as long-term earnings and revenue expectations and growth. Factor-based ETFs have increased in popularity. A simple definition of factor-based ETFs is that these funds are not quite actively managed per se, but they go far beyond the passive, cap-weighting routine by using growth, valuation and technical factors.
Should U.S. stocks rebound from their current doldrums with the growth factor leading that rebound, the PowerShares Dynamic Large Cap Growth Portfolio (NYSE: PWB) is one exchange traded fund that could be a compelling option for advisors and investors.
PWB, which celebrates its 11th anniversary in March, follows the Dynamic Large Cap Growth Intellidex Index. That benchmark applies "a rigorous 10-factor style isolation process to objectively segregate companies into their appropriate investment style and size universe. The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November," according to Invesco PowerShares, the fourth-largest U.S. ETF issuer.
In the four-year period spanning 2012 through 2015, PWB outpaced the S&P 500 each year. However, investors should be careful with that comparison because PWB is currently home to just 50 stocks. As is often the case with growth ETFs, PWB is heavy on three sectors: Consumer discretionary, technology and healthcare. Those groups combine for over 72 percent of the ETF's weight.
PWB's top 10 holdings include Dow components Home Depot Inc (NYSE: HD), UnitedHealth Group Inc. (NYSE: UNH), and Visa Inc (NYSE: V) as well as Google parent Alphabet Inc. (NASDAQ: GOOGL) and Facebook Inc (NASDAQ: FB).
Obviously, investors will want to know if factor-based ETFs generate noteworthy returns relative to their cap-weighted rivals. In some cases, the answer is a resounding yes, but others disappoint.
Over the past five years, the $417.3 million PWB has consistently outpaced the Russell 1000 Growth Index. PWB has bested that growth stock benchmark over the past year, three years and five years, according to PowerShares data. PWB charges 0.58 percent per year, or $58 for every $10,000 invested.
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