The ETF market is looking crowded in terms of numbers and diversity of funds, and the number of ETF sponsors. However, the market shares are highly concentrated with a steep gradient of fund sizes and sponsor market shares.

As of April (according to score keeping by Vanguard) the top ETF sponsors by asset market share were:

#1 Barclays: 53.0%
(iShares & iPathETNs)
http://www.ishares.com
http://www.ipathetn.com

#2 State Street: 24.8% share
(SPDRs)
http://www.ssgafunds.com

#3 Vanguard: 8.0% share
(Vangurd)
http://www.vanguard.com

#4 Invesco: 6.5% share
(Power Shares)
http://www.invescopowershares.com

#5 ProFunds: 2.8% share
(ProShares)
http://www.proshares.com

#6 Merrill Lynch: 1.1% share
(Holders)
http://www.holdrs.com

#7 Rydex: 1.0% share
(Rydex Funds & Currency Shares)
http://www.rydexfunds.com
http://www.currencyshares.com

The top four sponsors have 92+% market share.  The top seven sponsors have 97+% share.  All the rest divide less than 3% between them.

Richard Shaw
QVM Group LLC

Stocks in the US are often classified by market capitalization or by style (growth, value or blend). Those differences are not sufficient to create different asset classes, but within the US stocks asset class they have produced different results.

The categories are similar in character and their correlation with the broad US market is high (from the low 80’s to the high 90’s). For those reasons, they just don’t work well as separate asset classes. That said, they may present some element of opportunity for sub-class rebalancing gains due to return rotation within an allocated portfolio.

The chart shows the return for the index of each category for each of 11 calendar years, including 1997-2007. The top half of the chart color codes each year for each index category based on the level of return. The bottom half of the chart color codes each year according to the rank of the market-cap within the growth, value or blend styles.

Return color coding is as follows:

• red is for returns < -5%
• green is for returns > +5%
• yellow is for returns between -5% and +5%.

Rank color coding is as follows:

• green for 1st
• yellow for 2nd
• red for 3rd.

Click to enlarge image

One observation is that the large-cap category had longer periods of negative return than the mid-cap or small-cap categories for all three styles (growth, value and blend). Another observation is that mid-cap seems to have been the highest return category for all three styles.

Looking at annualized returns through April 2008, we see clearly that mid-cap was superior to large-cap over 3, 5 and 10 year holding periods for each of the three styles.

Year-to-date, on May 16, mid-cap is still marginally ahead of the other categories.

In a rear view mirror approach, these data may suggest an overweighting for mid-cap and small-cap exposure within the US stock asset class, and a compensating underweight of the large-cap category.

The argument may be made that large-cap companies are better able to internally finance growth, may have better global mixes of costs and revenues, and may have more defensible market positions. In the last 10 years that was mostly not sufficient to overcome the other advantages (at least in investor’s eyes) that mid-cap and small-cap companies demonstrated by their returns.

This data does not take into consideration the differences in valuation of the categories then and now. If mid-cap was initially undervalued and if it is currently overvalued, the historic trend would not be expected to continue. Relative valuation at different time periods, however, is a subject for a different article.

A forward look at the categories requires additional information, but history is always good to have in mind at the same time.

Richard Shaw
QVM Group LLC

[securities mentioned in this article: IVV, SPY, IJH, MDY, IJR, IVW, IJK, IJT, IVE, IJJ, IJS]

We selected the single country funds available in the Index Universe database for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each fund as follows:

• red for returns < -5%
• yellow for returns between 5% and -5% (or no data)
• green for returns > 5%

Funds with no data, were not in operation for those full years.

If you are interested in those country index funds with missing data, you may benefit by researching the index on which the fund is based to estimate how the fund might have done had it been in operation during the missing years. Don’t forget to subtract the fund expense ratio from the index return if you are estimating how the fund might have done in the years before its inception.

Click image to enlarge (dimensions 12.7 X 8.6 inches)

Richard Shaw
QVM Group LLC

We selected 70+ stock, bond and other indices for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be quite helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each index as follows:

• red for returns < -5%
• yellow for returns between 5% and -5%
• green for returns > 5%

The file is physically large at 1104 X 1075 pixels (399 Kb data size). Depending on your screen resolution you may have to scroll around the image to see all of it.

Click image to enlarge.

Richard Shaw
QVM Group LLC

This screened ETF list is based on a combination of features that are often requested by more cautious equity investors:

• funds with history and reasonable liquidity
• acceptable expense ratios for the type of portfolio
• not too much volatility for the return
• some current yield
• better total returns than bonds

The funds in the list are not recommendations. They are simply idea possibilities for do-it-yourself investors who may find the particular screening criteria useful.

The funds do not represent a full spread of the asset classes which we believe should be in a well designed portfolio.

The universe from which they were filtered is the entire database of hundreds of ETFs at www.IndexUniverse.com.

Important Note:

The fact that cautious investors ask the kinds of questions on which the filter is based, does not mean the funds that make it through the filter are conservative or necessarily good investments. In fact, some of them are aggressive, and some may be poor investments.

It is a raw filtered list of ETFs for further evaluation. Our intent is to save the “do-it-yourself ” investor time and effort by eliminating the hundreds of funds that don’t meet the criteria of the filter.

“Seasoning”: 

A much longer list of funds would be generated if the three-year data requirement were modified to include index funds tracking indices that themselves have three-years of data.  We believe that three years of “seasoning” is an important selection factor in a world with so many choices, but a new index fund following an established index with its own published history of three years or more can reasonably be seen as “seasoned” for three years.

Richard Shaw
QVM Group LLC