Quadrix Helps Analyze ETFs

9/21/2009


If you’re considering buying an exchange-traded fund (ETF), you want to know its relative performance, expenses, and risk characteristics. But more even important, you want to gauge the prospects of the underlying holdings.

Enter Quadrix®, the stock-rating system we introduced in 2000. Over the long haul, baskets of stocks consisting of top Overall scorers have delivered fairly consistent outperformance — often with only moderate volatility. In addition, baskets with the very highest Overall scorers tend to do the best, while those with the worst scorers significantly underperform.

We ran nearly 120 sector ETFs through Quadrix, looking for standouts capable of leveraging our system’s predictive power. Key attributes we looked for include:

Weighted-average Overall scores above the sector average. To calculate the weighted-average score, we started with Overall ranks for each stock in the ETF, then weighted those scores according to each stock’s percentage of the fund’s total stock-market value.

High percentage of assets in stocks with Overall scores above 80, as well as above 90.

Low percentage of assets in stocks with Overall scores below 20.

Sector purity, with at least 75% of assets in a specific sector.

LEADERS AMONG SECTOR ETFs
—— Quadrix Overall Score * ——
—— (% of Assets) ——
ETF (Price; Ticker)
Category Average (No. of ETFs)
Avg.
Above
90
(%)
Above
80
(%)
Below
20
(%)
YTD
Total
Return
(%)
Exp.
Ratio
(%)
PowerShares Dynamic Cons.
Discret. ($19; PEZ)
74
29
50
0
20.0
0.65
Consumer Discretionary (8)
70
21
44
3
30.0
0.52
PowerShares Dynamic Cons.
Staples ($24; PSL)
77
12
44
0
14.3
0.65
Consumer Staples (6)
75
9
35
1
12.0
0.53
iShares DJ U.S. Oil Equip.
& Svcs. ($41; IEZ)
79
28
64
1
55.1
0.48
Energy (13)
65
17
37
8
33.8
0.59
PowerShares Dynamic Fin’l
($17; PFI)
69
15
34
0
(5.4)
0.65
Financial (15)
52
6
16
8
5.7
0.52
PowerShares Dynamic
Healthcare ($21; PTH)
86
38
79
0
9.5
0.65
Health Care (15)
73
27
55
7
15.8
0.53
PowerShares Dynamic
Industrials ($22; PRN)
76
21
52
0
10.9
0.65
Industrials (8)
66
11
31
2
15.1
0.57
First Trust Materials AlphaDEX
($18; FXZ)
58
5
16
4
50.1
0.70
Materials (6)
53
5
12
14
49.9
0.60
iShares FTSE NAREIT Mtg.
REITs ($15; REM)
67
34
46
4
10.7
0.48
Real Estate (10)
46
4
7
10
17.5
0.54
SPDR Select Sector Tech.
($21; XLK)
74
27
39
4
36.0
0.22
Technology (18)
62
18
31
10
45.1
0.56
* Quadrix scores are percentile ranks, with 100 the best.

Two standouts are reviewed below. Note that sector funds have the potential for boom-or-bust performance, and are likely best suited for risk-tolerant investors.

PowerShares Dynamic Healthcare ($21; PTH) has a weighted-average Overall score of 86, well above the sector average of 73. The fund has 79% of its assets in stocks that score above 80, while 38% of assets score above 90. The portfolio holds 60 stocks, mostly small and midcap companies. Forecasts favorites Hospira ($42; HSP) and AmerisourceBergen ($22; ABC) are two of its 10 largest holdings. The expense ratio stands at 0.60%.

SPDR Select Sector Technology ($21; XLK), which tracks 85 technology and telecom companies, earns a weighted-average Overall score of 74, versus 62 for its peer-group average. Some 27% of assets are in stocks that score above 90, and 39% are in stocks that score above 80. So far in 2009, the fund has rallied 36%. The expense ratio is only 0.22%, versus an average of 0.56% for the category.

FORECASTS FUND RECOMMENDATIONS
Through Sep. 15, our recommended Growth Portfolio has gained 25.2% this year, versus 19.9% for its benchmark portfolio and a gain of 18.7% for the S&P 500 Index. The Conservative Portfolio increased 19.6%, versus 16.0% for its benchmark.
— Year-to-Date —
—— % of Portfolio ——
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Baron Asset ($43; BARAX)
23.4
D
6
7
Dreyfus Small Cap Stock Index
($16; DISSX)
19.1
D
0
0
Fidelity Export & Multinational
($18; FEXPX)
27.2
B
6
8
Fidelity Leveraged Co. Stock
($22; FLVCX)
53.0
A
0
0
Heartland Select Value
($23; HRSVX)
28.9
C
5
9
Heartland Value Plus ($22; HRVIX)
19.6
D
7
8
Northern Small Cap Value
($12; NOSGX)
13.7
E
0
0
T. Rowe Price Int’l Discovery
($36; PRIDX)
48.7
A
5
7
T. Rowe Price New Horizons
($24; PRNHX)
34.9
B
6
8
Vanguard 500 Index ($97; VFINX)
18.7
C
7
7
Vanguard Dividend Growth
($12; VDIGX)
12.7
E
8
10
Vanguard Emerging Mkts. Stock
Indx. ($24; VEIEX)
59.7
B
0
5
Vanguard GNMA ($11; VFIIX)
4.3
B
6
0
Vanguard Inter.-Term Tax Exempt
($14; VWITX)
9.6
C
0
0
Vanguard International Value
($31; VTRIX)
30.2
B
8
9
Vanguard Short-Term Invest. Grade
($11; VFSTX)
12.0
A
0
0
Vanguard Total Bond Mkt. Index
($10; VBMFX)
5.0
E
20
0
Vanguard Wellesley Income
($20; VWINX)
11.7
E
0
7
Vanguard Wellington ($28; VWELX)
16.6
D
9
10
Wells Fargo Advantage High Income
($7; STHYX)
25.5
E
7
5
* Rankings through Sep. 15 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. c Closed to new investors.

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