Fundamentals, Technicals Or Insider/Analyst Sentiment: Why Not All Three?

by: Brad Kenagy

After writing my last article on dividends and share buybacks, I set out to see if the same process works to find companies screened by their inclusion under three ETFs: a fundamentals based ETF, a technicals based ETF, and an insider buying/analyst expectations based ETF. The three ETFs I used are listed below with a description of the ETF.

First Trust Large Cap Core AlphaDEX (NASDAQ:FEX)

From First Trust fund fact sheet: "The index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the S&P 500 Index which may generate positive alpha relative to traditional passive indices. The index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the index."

PowerShares DWA Technical Leaders (NASDAQ:PDP)

From PowerShares fund description page: "The Index includes approximately 100 U.S.-listed companies that demonstrate powerful relative strength characteristics. The Index is constructed pursuant to Dorsey Wright proprietary methodology, which takes into account, among other factors, the performance of each of the 3,000 largest U.S.-listed companies as compared to a benchmark index, and the relative performance of industry sectors and sub-sectors."

Guggenheim Insider ETF (NYSEARCA:NFO)

From Guggenhiem's fund fact sheet: "The Index is designed to identify companies with potentially superior risk-return profiles as determined by Sabrient Systems LLC, the Fund's index provider. The objective of the Index is to actively represent a group of securities that are reflecting favorable corporate insider buying trends (determined via the public filings of such corporate insiders) and Wall Street analyst earnings estimate increases."

Comparison 1

The first chart below compares FEX, PDP, and NFO to the SPDR S&P 500 (NYSEARCA:SPY). The chart begins on the week starting May 7, 2007, since that was the week FEX began trading.

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Blue Line SPY, Red Line FEX, Green Line PDP, Tan Line NFO

Observations: The above chart shows that since its inception NFO, has greatly outperformed the SPY, as well as FEX, and PDP.

Comparison 2

For my second comparison, I wanted to see if it was in most market conditions or more specific market conditions that NFO outperformed the other ETFs. So for the chart below I compared the four ETFs from the March 2009 bottom in the stock market until the current time.

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Blue Line SPY, Red Line FEX, Green Line PDP, Tan Line NFO

Observations: The above chart shows that since the stock market bottom in March 2009 that NFO has greatly outperformed FEX, PDP, and the SPY by a wide margin.

Comparison 3

For my final comparison, in the chart below, I looked at the four ETFs from the stock market high in October 2007 high till the bottom in March 2009.

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Blue Line SPY, Red Line FEX, Green Line PDP, Tan Line NFO

Observations: The above chart shows that from the stock market high in October 2007 to the March 2009 bottom, FEX slightly outperformed PDP, and NFO. From the chart, I also noticed that for a good stretch in 2008, PDP showed some real outperformance over the other ETFs, but at the end of 2008 and the beginning of 2009, the outperformance changed to underperformance. What surprised me is that all three funds slightly underperformed the SPY.

Overall observations

The basic theme I get from looking at the charts is that in the bull market since the March 2009 bottom, NFO has really shown its outperformance over the other ETFs, and in a bear market all of the ETFs underperformed the SPY. So I wondered if there was a way to capture the best companies of all three ETFs. Like in my previous article, I used the same process to find companies that were fundamentally strong, technically strong, and have had insider buying/ analyst earnings estimate increases.

My process

First, I went to the holdings page on First Trust's website for FEX, and copy-pasted the holdings into a spreadsheet. Next, I went to the holdings page on the PowerShares website for PDP, and repeated the process of copy-pasting the holdings into the spreadsheet. Finally, I went to the holdings page on Guggenhiem's website for NFO, and copy-pasted again. I then sorted the companies and looked for those that were included in all three funds; I found eight. The whole process of going to each fund's website, copy-pasting the holdings into a spreadsheet, and sorting in the spreadsheet took about 10-15 minutes, in line with my theme of keeping things simple. Listed below are the eight companies, with a short business summary from Yahoo Finance.

  • Apple Inc. (NASDAQ:AAPL), together with subsidiaries, designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players; and sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide.
  • Dollar Tree, Inc. (NASDAQ:DLTR) operates discount variety stores in the United States and Canada.
  • EQT Corporation (NYSE:EQT), together with its subsidiaries, operates as an integrated energy company in the United States.
  • Fastenal Company (NASDAQ:FAST), together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies.
  • Hormel Foods Corporation (NYSE:HRL) engages in the production and marketing of various meat and food products.
  • Macy's Inc (NYSE:M), together with its subsidiaries, operates department stores and Internet Web sites in the United States.
  • V.F. Corporation (NYSE:VFC) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe.
  • Whole Foods Market, Inc. (NASDAQ:WFM) engages in the ownership and operation of natural and organic food supermarkets.

Closing thoughts and the road ahead

The eight companies that are included in all three ETFs come from a variety of industries and sectors, which is good for diversification. February 2 was the day I started my process of looking at all the holdings of the three ETFs, and I will be tracking this portfolio of stocks and comparing them to FEX, PDP, and NFO, as well as the SPY. I will provide an update to the performance at the end of the year.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.