ETFs With A-Plus Ratings and 'Integrity'

NEW YORK ( TheStreet) -- Risk-adjusted returns are often the most important gauge of exchange traded funds.

The following five ETFs earned TheStreet.com Ratings' highest rank of A-plus, or excellent, for risk-adjusted returns over the year ending Jan. 31, but also rated well in so-called structural-integrity factors such as expense ratio, bid/ask spread, tracking error, market impact and efficiency.

First Trust Mid Cap Core AlphaDEX ( FNX) rose 47% and ranked in the 56th percentile of structural integrity, according to Marco Polo XTF.

The fund's three best structural accomplishments are low tracking error and concentration risk, and high efficiency. By maintaining a six-month tracking error of just 0.32% to the price-and-yield performance of its underlying benchmark, the S&P Defined Mid Cap Core Index, the ETF ranks in the 62nd percentile for tracking error. XTF.com places the fund in the 88th percentile for concentration risk on low individual constituent weightings and high number of holdings, preventing over-exposure to individual stocks.

An efficiency ranking of 86% shows the fund managers' ability to generate alpha, returns in excess of its benchmark, with stock selections like Barnes & Noble ( BKS), Ralcorp Holdings ( RAH) and Patriot Coal ( PCX).

First Trust Health Care AlphaDEX ( FXH) also did well, with low tracking error and concentration risk.

On top of this, the ETF ranks in the 59th percentile for average bid/ask ratio. The smaller the average spread between the bid price and the ask price, the more attractive the security becomes to traders. Tightening bid/ask ratios show a fund becoming more popular as average daily trading volumes increase.

The fund is seeking healthy returns from UnitedHealth Group ( UNH), Tenet Healthcare ( THC) and Humana ( HUM).

On top of an 87th percentile ranking for efficiency for positive alpha, iShares MSCI All Country Asia ex-Japan Index Fund ( AAXJ) scored in the 74th percentile on low market impact. To measure liquidity, Macro Polo XTF judges the market impact to each ETF when absorbing a hypothetical 50,000 share trade. Buy orders that push the price higher and sell orders that pull the price down to get filled reveal a high market impact ETF to be less attractive.

The First Trust Large Cap Value Opportunities AlphaDEX Fund ( FTA) ranks in the 84th percentile for efficiency and in the 85th percentile for concentration risk.

All four of the above funds were ranked in the 100th percentile for tax efficiency by avoiding all capital gains distributions over the past 12 months.

The WisdomTree LargeCap Growth Fund ( ROI) is placed in the 85th percentile for alpha efficiency and its low expense ratio of 0.38% is better than 69% of its competitors.

For the best rated exchange-traded funds, check out our Top ETFs page.

-- Reported by Kevin Baker in Jupiter, Fla.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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