5 Actively Managed ETFs That Beat The Market In 2013

The top-performing actively managed ETFs in 2013 all use strategies geared to outperform the stock market. And because they did, they deserve consideration.

But, buyer beware: Winners one year could lag longer term. And investors should note that three of the top five are thinly traded.

• Columbia Select Large-Cap Growth (RWG), the No. 1 performing actively managed fund last year, returned an eye-popping 45% vs. 32% for SPDR S&P 500 (SPY). But it lags the benchmark longer term after it lost 7% in 2011, while the S&P picked up 2%.

It underperformed the benchmark in 2010 and 2012 by 1 and 2 percentage points, respectively. Over the past three years, it's returned an average annual 14.4% vs. 15.5% for the S&P 500.

Management's investing strategy as stated in the prospectus is vague: It does "fundamental and qualitative analysis" to find investing opportunities while considering "the quality of (a company's) balance sheet and earnings, its future prospects, and the potential for growth and stock price appreciation." Annual expense ratio: 0.86%. Average daily volume: only 1,800 shares.

• TrimTabs Float Shrink (TTFS), up 44%, beat the S&P by 12 percentage points last year after lagging the benchmark the prior year by 2 percentage points. Investor assets swelled more than tenfold in 2013 to about $104 million currently.

The fund holds stocks of 100 equal-weighted companies screened from the Russell 3000 index that are buying back shares, thereby decreasing the number of publicly traded shares or "shrinking the float."

Companies must also be increasing their cash flow and paying back debts to ensure that companies aren't borrowing money to beef up their stock prices.

"Six percentage (points) of the outperformance was due to the average TTFS holdings reducing the number of shares outstanding by about 6%," Charles Biderman, the ETF's portfolio manager, said in an email. "In addition, companies growing free cash flow while reducing the float of shares traded at an additional 6% premium, resulting in the 12% outperformance." The ETF carries a 0.99% annual expense ratio.

• AdvisorShares Madrona Domestic (FWDD) gained 39% last year after returning 19% in 2012 — 2.5 percentage points over the S&P. Subadvised by Madrona Funds, the ETF targets companies with the best earnings forecasts based on analysts' research and weights them based on their valuations. Weeding out stocks with "poor projected profits or a decreasing projection of profits can have a positive effect on the return of an investment portfolio over time," Madrona states in the ETF factsheet. It can hold as many as 500 of the largest stocks on the stock market.

Its expense ratio is a rather high 1.25%. Its average daily volume is just 1,200 shares.

• Columbia Select Large Cap Value (GVT), up 34%, trumped the S&P last year but isn't exciting longer-term. It returned an average annual 15% the past three years vs. 15.5% for the benchmark. Managers select holdings from the Russell 1000 index using a bottom-up stock-picking approach.

They target companies with a low price-earnings ratio and/or low price-to-book ratio in which shares may have been beaten down for some reason that no longer exists. They also look for companies experiencing a positive change in senior management, corporate restructuring or business cycle and a catalyst that would increase earnings growth. Expense ratio: 0.79%. Average daily volume: less than 1,000 shares.

• Huntington U.S. Equity Rotation Strategy (HUSE), up 33%, beat the market in 2013 by overweighting three of last year's leading sectors: health care, technology and industrials. Seventy percent of the fund is allocated to the S&P 1500 index — a combo of the S&P 500, S&P 400 and S&P 600 — while 30% is invested in sectors and stocks the fund managers "believe will perform best under given economic and market environments," Martina Cheung, co-manager, said in an email. Variables they consider include gross domestic product, money supply, inflation and interest rates, she added.

Expense ratio: 0.95%. Average daily volume has risen in recent weeks to 134,000.