Four Obscure Sector ETFs Outperforming Bigger Rivals

There are instances in life when size does matter - but when it comes to ETFs, size can be deceiving. Investors have a tendency to equate a fund's size with quality, but there is no empirical evidence to suggest that simply because an ETF is home to a large assets under management and robust average daily trading volume that it is a "good" fund. In fact, the volume argument has

as a plethora of thinly-traded ETFs have shown stellar returns in 2012. As for size by way of assets, that's another argument that

as there are plenty of "me too" ETFs that have outpaced their larger rivals. in other words, the proof is in the pudding that popularity is great in high school - but not so much with ETFs. With that, here are a few ETFs that some investors probably haven't heard about. These obscure funds are outdoing their more heralded counterparts.

The energy sector is one of the ideal places to find unheralded ETFs that are delivering better returns than their more popular equivalents. There's no denying that the Energy Select Sector SPDR

and the Vanguard Energy ETF

make for decent choices for investors looking for exposure to integrated oil stocks. Both ETFs are large, highly liquid, and feature expense ratios of just 0.18% and 0.19% respectively. Those factors don't change the fact that the PowerShares Energy Exploration & Production Portfolio, which holds many of the same stocks as XLE and VDE, is the better performer over almost all relevant time horizons. PXE is more expensive at 0.63% per year, but paying another 45 basis points in fees, investors get an ETF that has outperformed XLE and VDE year-to-date, over the past year and over the past five years. And yes, PXE outperforms its rivals by more than enough to make up for its higher fees.

When it comes to ETFs that are devoted exclusively to high momentum Internet stocks such as Amazon

and Priceline

, investors have two choices: the larger, more widely-followed First Trust Dow Jones Internet Index Fund

and the PowerShares Nasdaq Internet Portfolio. The two ETFs make for a compelling, if undiscovered

, but how intense is debatable. With $427 million in AUM, FDN is more than eight times larger than PNQI. That's not what's important. What's important is the fact that both ETFs charge 0.6% annually, but year-to-date, over the past year and over the past five years, PNQI is the winner in terms of performance - by noteworthy margins, we should add.

It's a daunting task for an ETF tracking bank stocks to stand out in what is a heavily crowded field, but FXO does have its perks. The five-year-old ETF has almost $172 million in AUM and its average daily volume is strong at over 473,000 shares. Still, FXO is overshadowed by the likes of the Financial Select Sector SPDR

and the Vanguard Financials ETF

. Year-to-date, FXO has slightly lagged XLF and VFH. Over the past 90 days, the First Trust fund is in the middle of this three-fund pack. Stretch things out over a year, or five years, and FXO's dominance becomes apparent. XLF and VFH are nowhere close to FXO over those time horizons.

As is the case with the financial services sector, it's hard for some materials ETFs to really standout in the face of intense competition from the dominant funds such as the Materials Select Sector SPDR

and the iShares Dow Jones US Basic Materials Index Fund

. FXZ warrants consideration for the same reasons that PXE and FXO do: different index and weighting methodologies have lead to superior returns. FXZ's constituents are ranked by factors including three, six and 12-month price appreciation; sales to price and one year sales growth - and, separately, on value factors including book value to price, cash flow to price and return on assets, according to First Trust. In other words, market cap isn't the sole factor in determining a stock's weight in this ETF. The combined diversity of factors delivers an ETF that has outperformed IYM and XLB over the past six months, year-to-date and over the past year. Over the past five years, FXZ is the only member of this trio to sport positive returns.