If you have lost money over the past 12 months, don’t feel too bad. If you have lost a ton of money over the past 12 months, perhaps you can find some solace in the fact that the stock market has gobbled up former investment stallions, shaken up their performance records and spat them back out looking nothing more than investment rookies.

The once invincible Bill Miller, whose Legg Mason Value Trust (Nasdaq: LMVTX) had beaten the S&P 500 (AMEX: SPY) 15 consecutive years (after fees), from 1991 through 2005, just received his very own reality check. LMVTX has lost four of its five Morning Stars and more importantly lost half of its value.

Value fund heavy hitters like Wally Weitz, who manages the $2.5 billion Weitz Value Funds (Nasdaq: WPVLX and Nasdaq: WVLAX), and Chris Davis who heads up the $1 billion Clipper Fund (Nasdaq: CFIMX) got in trouble with their bets on Fannie Mae, Merrill Lynch, Ambac and other financial holdings. Legg Mason’s Bill Miller got burned with homebuilders. All of the above managers lag the S&P 500 by 10 – 30% over the past year.

ETF Profit Strategy Newsletter- Learn how to profit with ETFs and how to protect your wealth

While value mutual funds underperform, you will find (if you look) value ETFs, quietly and in the shadows of celebrity value fund managers, taking over the top performance ranks. ETFs with a 20 basis point expense ratio won’t provide super-human results in tough markets; they do however deliver more consistent and predictable value.

iShares, PowerShares, State Street Global and Vanguard offer full sets (large, mid, small-cap) of value ETFs based on Morningstar, Russell, S&P, Dynamic, DJ Wilshire and MSCI index chassis. As could be expected, each index provider uses a different methodology to define “value”.

The iShares Russell based suite of value ETFs (iShares Russell 1000 Value: NYSEarca: IWD - iShares Russell Midcap Value; NYSEarca: IWS –– iShares Russell 2000 Value; NYSEarca: IWN) uses two factors to determine style; P/B and forward earnings estimates.

The iShares S&P based suite of value ETFs (iShares S&P 500 Value; NYSEarca: IVE - iShares S&P MidCap 400 Value; NYSEarca: IJJ - iShares S&P Small Cap 600 Value; NYSEarca: IJS) uses seven factors to determine style, four of which are value specific factors.

Russell and S&P define a stock as growth, value or a little of both.  For stocks deemed partially value and partially growth (determined by their scores) their market cap is split proportionately (say 50/50% or 70/30%) to the growth and value indexes depending on their “growthy-ness” or “value-ness”.

Based on the MSCI chassis, the Vanguard value ETFs (Vanguard Value; NYSEarca: VTV – Vanguard Mid Cap Value; NYSEarca: VOE – Vanguard Small Cap Value; NYSEarca: VBR) are screened based on 1) Book value to price ratio 2) 12-month forward earnings to price ratio.

The Morningstar suite of value ETFs uses a different approach. The iShares Morningstar Large Value; NYSEarca: JKF - iShares Morningstar Mid Value; NYSEarca: JKI - iShares Morningstar Small Value; NYSEarca: JKL apply ten factors to determine style and have three mutually exclusive buckets (value, growth and core).

S&P, Russell, MSCI and Morningstar share the same weighting methodology (market cap weighted). The components of the parent index are all passively selected and further screened for style. All but Morningstar tend to fish in the same pond (one stock could be growth and value at the same time).

Until recently, growth has outperformed value. The Morningstar value index offers the purest direction plays (value/growth) due to the mutual exclusive nature of their “buckets” (one stock can only be growth or value, not both).  It thus makes sense that the Morningstar suite of value ETFs underperformed the other suites of ETFs.

Even though there was no conclusive pattern of consistent outperformance, it should be noted that the iShares Russell and iShares S&P value series generally appeared within the first two to three ranks.

The PowerShares suite of Dynamic value ETFs stands out as different. It applies a proprietary screen to a universe of 2,000 stocks and selects 50 (large value), 150 (mid value) or 100 (small value) components for index inclusion. All stocks are weighted equally.

In the large cap category, the PowerShares Dynamic Large Cap (AMEX: PWV) outperformed its market cap weighted peers while the PowerShares Dynamic Mid Cap Value (AMEX: PWP) underperformed. The PowerShares Dynamic Small Cap Value (AMEX: PWY) secured a spot in the middle.

ETFguide Subscribers Know More! Sign Up For Our FREE Newsletter

Vanguards line of ETFs boasts the lowest expense ratio (0.10% - 0.13) while PowerShares charges 0.60%. The other three families are in the 0.23% neighborhood (+/- 0.07%). 

Old fashioned, market cap weighted  ETFs, a la Russell, S&P, MSCI, etc. , are more relevant as a portfolio’s core holding than quantitatively weighted ETFs a la PowerShares. This is not as much an issue of performance as it is a matter of continuity. The performance of quant weighted ETFs might be all over the board and therefore significantly over or under-perform well-known, respective benchmarks. With market cap weighted ETFs you know what you get.