ETF Replacements For Contrafund

February 24, 2014

I can now compare each of the ETF candidate funds' returns to Contrafund's, looking for the tightest correlations and risk levels over the past one- and five-year periods.

Regression Results: Contrafund Vs. Five US Large-Cap Growth ETFs

MGK VUG IVW IWF JKE
1 year Goodness of Fit 0.96 0.97 0.96 0.97 0.96
Beta 1.03 1.00 1.04 1.04 0.99
5 years Goodness of Fit 0.96 0.97 0.96 0.96 0.96
Beta 0.95 0.92 0.94 0.93 0.91

Two good choices pop up: the Vanguard Growth ETF (VUG | A-89) and the Vanguard Mega Cap 300 Growth ETF (MGK | A-93). While VUG looks like a fantastic match over the past year, Contrafund's low five-year beta makes VUG look risky in comparison.

MGK seems a better match over the long haul.

Too bad VUG and MGK are not the same funds they were five years ago. In April 2013, Vanguard switched these two funds from tracking MSCI indexes to a new series from the University of Chicago's Center for Research in Security Prices (CRSP). The one-year regressions contain some data from Vanguard's MSCI days; the five-year regressions are irrelevant.

So now I have to test Contrafund against VUG's and MGK's current CRSP indexes.

CRSP publishes returns data back to September 2012—only enough for a short-term check. I ran an out-of-sample test of Contrafund's returns versus the pre-change CRSP index.

Regression Results: Contrafund Vs. VUG And MGK's New CRSP Indexes

Sept 2012 - April 2013 CRSP Mega Growth Index (MGK) CRSP Large Cap Growth Index (VUG)
Goodness of Fit 0.97 0.98
Beta 0.97 0.93

....

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