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Andrew Hallam is the index investor for Strategy Lab. Globe Unlimited subscribers can view his model portfolio here and read more in the series online here.

Marco Pantani was a former Tour de France cyclist. He often started races far behind his competition. But when the races hit the Alps, he caught rider after rider. He weighed 125 pounds. He was just 5 foot 6. When he first said that he could win the Tour de France, many people chuckled.

The same could be said of an investment firm that claims to beat the market. That's First Asset. Like the late Mr. Pantani, it is smaller than the competition. Vanguard and iShares are Canada's biggest ETF providers. But First Asset's 48 ETFs are making up some ground. According to David Barber, vice-president of national accounts at First Asset, "Our AUM [assets under management] in calendar year of 2015 grew by 57 per cent, from $1.16-billion to $1.82-billion. The Canadian ETF industry grew by 16.6 per cent from $76.8-billion to $89.6-billion."

Much of First Asset's popularity came from strong performances.

Their Morningstar International Momentum ETF (ZXM.B) was the top performing (unlevered) Canadian listed ETF last year. It gained 37.9 per cent. Their MSCI USA Low Risk Weighted ETF (RWU.B) gained 25.4 per cent. First Asset's MSCI Europe Low Risk Weighted ETF (RWE.B) gained 25.1 per cent. Each of these ETFs thrashed their benchmark indexes. First Asset also had three of the top 10 Canadian-listed performers.

But how can an index beat an index? Most index funds track the market's return. They weight their holdings based on each company's respective size. For example, Apple is worth about $565-billion (U.S.), based on market capitalization. It's three times the size of Coca-Cola, which is worth about $190-billion. In a traditional index fund, Apple's stock would be weighted three times higher than Coca-Cola's stock.

First Asset and their Morningstar partners back-tested models of index-fund construction and found historical winning patterns. They don't weight stocks in proportion to their market capitalization. Instead, their ETFs hold low-volatility stocks in equal proportions. They also seek stocks with low prices relative to earnings, cash flow, sales and book value. That's how they hope to beat the market.

They back-tested results for their first four ETFs, which were launched in February, 2012. During the decade ended July 31, 2014, they say the ETFs would have beaten their respective benchmark indexes by an average of 4.17 per cent per year.

But many experts argue against historical back-testing. We're often fooled by random patterns. To prove that, computer scientist David Leinweber and his colleague Dave Krider at First Quadrant searched to see what measurement best correlated with the growth of the S&P 500. The winner was butter production in Bangladesh. Most people understand how ridiculous that is. But to Mr. Leinweber's amazement, he still gets occasional calls that ask for current Bangladeshi butter figures.

But that doesn't mean we should laugh at every back-test. Two of First Asset's original four ETFs are climbing like Mr. Pantani, despite a Canadian market headwind over the past four years. The First Asset Morningstar Canadian Value Index ETF (FXM) gained 35.27 per cent from Feb. 16, 2012, to March 2, 2016. In a similar category, iShares Canadian Value Index ETF (XCV) gained just 20.87 per cent during that time.

First Asset Morningstar's Canada Momentum Index ETF (WXM) climbed even higher. It gained 43.9 per cent over the same time period. Meanwhile the iShares Canadian Growth Index ETF (XCG) couldn't hang on. It gained just 21.2 per cent.

But First Asset's dividend ETF suffered from horrible leg cramps. Their Morningstar's Dividend Target 30 Index ETF (DXM) struggled to gain 5.3 per cent over the four-year period. Its competitor, iShares Canadian Select Dividend ETF (XDV) left it in the dust. It gained 18.02 per cent.

First Asset's U.S. Dividend Target 50 Index ETF (UXM) got two flat tires on a tail-winded stretch. It gained 43.6 per cent. Its currency hedging caused one leak. I've long recommended that investors should accept currency movements and go with non hedged products. With help from the strong U.S. dollar, and a higher performing allocation of shares, the iShares Select Dividend ETF (DVY) pushed far out of sight. Measured in Canadian dollars, it gained 117 per cent over the same four-year period.

First Asset's original funds have earned some strong stage wins. String their performances together, however, and they trail the competition. If $40,000 (Canadian) were invested equally into each of First Asset's four ETFs on Feb. 16, 2012, it would have grown to $52,817. Similar asset class investments into iShares ETFs would have seen that money grow to $57,752. Other investors prefer simpler still. Those allocating three-quarters of their money into TD's e-Series Canadian Index Fund with one quarter going into TD's e-Series U.S. Index Fund would have turned the same $40,000 into $55,703.

Consistently beating the market is like winning the Tour de France. Victors aren't declared after just four stages. They also need to endure over diversified terrain. So far, First Asset's funds are falling behind. But if they're anything like Marco Pantani in his prime, they won't be fretting yet. Mr. Pantani, eventually, did win the Tour de France.

First Asset vs iShares and TD's e-Series Index Funds (Feb. 16, 2012 to March 2, 2016)

First Asset ETFsiShares ETFsTD e-Series ETFs
Canadian Value (FXM)35.27%Canadian Value (XCV)20.87%Canadian Stock Index16.01%
Canadian Momentum (WXM)43.90%Canadian Growth (XCG)21.20%-
Canadian Dividend (DXM) 5.30%Canadian Dividend (XDV) 18.02%-
U.S. Dividend (UXM)43.60%U.S. Dividend (DVY)117.40%U.S. Stock Index109.20%
Growth of $40,000, Equally Split$52,817Growth of $40,000, Equally Split$57,752Growth of $40,000 Split: 75% Canadian Index; 25% U.S. Index$55,703
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