ETFOX: The ETF Mutual Fund That Continues to Outsmart the S&P 500

by: Don Dion

Since its selection as Fidelity Independent Adviser’s Best Fund for Second Quarter 2009, Paul Frank’s ETF Market Opportunity Fund (MUTF:ETFOX) has continued to beat the S&P 500. While Frank’s ETF based mutual fund has grown dramatically, his methodology has remained consistent, and he continues to attribute his success to both the transparency of ETFs and the fundamental oversight that a mutual fund provides.

In a follow up interview, provided below, Frank provided timely insight into recent changes in his fund holdings and explained how recent market events have impacted ETFOX.

Q: How have recent market conditions, including the March rally, impacted the composition of your portfolio?

A: ETFOX is designed to react to market movement, so several of my positions have changed along with the market in recent weeks. My model led me to trim my exposure to fixed income, and while I dropped the Proshares UltraShort 20+ Year Treasury Fund (TBT) in March, I began buying shares again on April 14. At the beginning of the March rally, I added large-value ETFs to the fund but have since moved to small cap growth. Technology ETFs have performed well, and I have added Vanguard Information Technology ETF (VGT) to the fund, while increasing my position in iShares S&P North American Tech-Semiconductors (IGW). The core of ETFOX is still large growth funds.

Q: Will the size of the fund impact your investment decisions?

A: Short answer: no. One of the most important benefits that ETFOX continues to bring investors is a fundamental filter for the increasingly large pool of ETF products. Over time my fundamental work has eliminated thinly traded or poorly managed ETFs from my rankings. My fund structure allows me to easily add or drop ETFs as my rankings change. This flexibility has actually allowed me to add a little more diversification to the fund.

Q: Have any ETFs made unexpected moves in your rankings? Which ETFs have gained or lost recently according to your formula?

A: While value ETFs had a pop in mid March due to their large percentage of financial services, small cap ETFs have recently advanced in my rankings. I currently own Vanguard Small Cap (VB), Vanguard Small Cap Growth (VBK) and ProShares Ultra Russell 2000 (UWM). iShares Dow Jones US Aerospace & Defense (ITA) has also been climbing in my rankings, and I’m slowly accumulating shares. iShares MSCI Hong Kong Index (EWH) has also moved up my rankings quickly, and we're experiencing nice gains in that fund.

Q: What are the fund’s top holdings now?

  • PowerShares QQQ 14.31%
  • iShares Russell 1000 Growth Index 10.17%
  • Vanguard Growth 9.41%
  • Vanguard Small Cap 8.44%
  • iShares G.S. Semiconductor 7.94%
  • Vanguard Info. Tech. 7.00%
  • Vanguard Value 5.03%
  • iShares Dow Energy 4.55%
  • Vanguard Small Cap Growth 4.27%
  • Ultra Russell 2000 Proshares 3.27%

To read Paul Frank’s Fidelity Independent Adviser interview, please click on the following link.

To read Fidelity Independent Adviser’s Special Report on ETFOX, please click on the following link.