ETF Replacements For Contrafund

February 24, 2014

Regression Results: Contrafund Vs. MSCI USA Large Growth And Investable Markets Indexes

Large Growth USA IMI
1 year 5 years 1 year 5 years
Goodness of Fit 96.6% 96.3% 94.8% 94.5%
Beta 1.05 0.95 1.02 0.85
Alpha (95% significance) None None None None

"Large Growth" was the clear winner, with tighter correlations and less volatility.

Contrafund's claims to be a large-cap growth fund stand up to testing. Now that I've identified Contrafund's segment, I'll draw from a pool of ETFs to test as replacements for Contrafund; namely, the 16 U.S.-listed large-cap growth ETFs. You can find the full list on ETF.com's ETF Finder tool.

I quickly shrunk the field to 13 funds, because, of the 16, two track the Russell 1000 Growth index, and three track the S&P 500 Growth Index. BlackRock's iShares Russell 1000 Growth ETF (IWF| A-89) is both more efficient and more liquid than the Vanguard Russell 1000 Growth (VONG | A-89) for the Russell 1000 Growth, and the iShares S&P 500 Growth ETF (IVW | A -90) is the best choice among the S&P 500 growth trackers.

I also filtered out ETFs with less than five years of history. Eight funds are left.

Looking at Contrafund's beta to the MSCI USA Large Growth index allows me to narrow the replacement candidates list down to six funds.

That's because two of those remaining eight candidate funds, the First Trust Large Cap Growth AlphaDex Fund (FTC | B-59) and the Guggenheim S&P 500 Pure Growth ETF (RPG | A-56), have one- and five-year betas to this index that are out of Contrafund's range—1.15/1.09, and 1.17/1.21, respectively. In other words, these funds have been riskier than Contrafund.

The next step involves comparing key portfolio statistics for the six remaining funds with the Contrafund. The PowerShares Dynamic Large Cap Growth Portfolio (PWB | A-72) portfolio doesn't match Contrafund's. So, now I'm down to five funds.

Portfolio Statistics: Contrafund Vs. Six US Large-Cap Growth ETFs

Fund Tickers Fund Name #1 Sector #2 Sector Weighted Average Market Cap TTM P/E Ratio Worth Testing?
FCNTX Contrafund Technology Consumer Cyclicals 111,081,703,395 22.48 Yes
MGK Vanguard Mega Cap 300 Growth Technology Consumer Cyclicals 122,212,205,765 22.15 Yes
IVW iShares S&P 500 Growth Technology Consumer Cyclicals 126,092,536,150 20.62 Yes
IWF iShares Russell 1000 Growth Technology Consumer Cyclicals 96,211,924,137 23.07 No
PWB PowerShares Dynamic Large Cap Growth Consumer Cyclicals Industrials 76,179,516,130 25.71 Yes
VUG Vanguard Growth Technology Consumer Cyclicals 98,434,986,310 23.75 Yes
JKE iShares Morningstar Large-Cap Growth Technology Consumer Cyclicals 129,583,214,978 24.85 Yes

Finally, the quant magic can begin.

 

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