The track record of any managed investment program goes a long way toward building a foundation, as well as a following of investors. The one-year return is too short and the five-year return eliminates a number of programs that are performing well and just have not been around long enough. This leaves the three-year return as the key metric for the up-and-comers that have survived.
One ETF that fits in this category is the Rydex S&P Midcap 400 Pure Growth Fund (NYSE:RFG). The three-year return calculated as of Aug. 31, 2011, is 14.62%, though it experienced a -9.56% return in the past three months. RFG has found a nice spot in the mix of equity ETFs, and the short-term drop might be a buying opportunity for the long-term investor. Top 10 holdings and weightings are listed below.
- Green Mountain Coffee (NASDAQ:GMCR): 5.37%
- Deckers Outdoor Corp. (NASDAQ:DECK): 2.38%
- Rackspace Hosting (NYSE:RAX): 2.19%
- NewMarket Corp. (NYSE:NEU): 2.11%
- Medicis Pharmaceutical Corp. (NYSE:MRX): 1.95%
- Hansen Natural Corp. (NASDAQ:HANS): 1.85%
- Fossil (NASDAQ:FOSL): 1.81%
- The Cooper Companies (NYSE:COO): 1.75%
- Under Armour (NYSE:UA): 1.73%
- Valassis Communications (NYSE:VCI): 1.64%
Management of RFG has a disciplined approach to portfolio holdings. With the exception of the top four stocks, the remainder of the portfolio has less than 2% to any one issue. RFG is an exception to most over-diversified programs by delivering returns greater than the field.
The second ETF that deserves recognition is the Select SPDR S&P Pharmaceuticals ETF (NYSE:XPH). The three-year return calculated as of Aug. 31, 2011, is 14.03%, and the three-month return is -2.11%. XPH had a significant run starting at the end of 2009. Again, the recent drop in value represents a buying opportunity. The top 10 holdings and weightings are listed below.
- Jazz Pharmaceuticals (NASDAQ:JAZZ): 4.38%
- Watson Pharmaceuticals (NYSE:WPI): 4.28%
- Bristol-Myers Squibb (NYSE:BMY): 4.23%
- Warner Chilcott (NASDAQ:WCRX): 4.23%
- Perrigo (NASDAQ:PRGO): 4.19%
- Allergan (NYSE:AGN): 4.16%
- Abbott Labs (NYSE:ABT): 4.10%
- Eli Lilly (NYSE:LLY): 4.10%
- Mylan (NASDAQ:MYL): 4.08%
- Merck & Co. (NYSE:MRK): 4%
XPH management appears to take a equal weighting approach to the top half of the portfolio. The reasoning is to pick the solid pharmaceutical stocks to drive the returns of the portfolio and not take excess risk to any one stock. This method is working, as XPH is beating the average market returns for the same period.
Rounding out the list, the iShares MSCI Malaysia Index Fund (NYSE:EWM) posted a three-year return of 16.48%, though its three-month return is -13.68%. EWM focuses on holding stocks that make up the MSCI Malaysia Index. Because of the exposure to foreign markets, it might not be as simple to take the current drop in value as a buying opportunity. If you’re going to dip your toes into this ETF, get comfortable with the strategy first. The sector breakdown of the portfolio is listed below.
- Financials: 32.35%
- Industrials: 18.48%
- Consumer Staples: 11.36%
- Consumer Discretionary: 11.23%
- Telecommunications: 10.88%
- Utilities: 9.18%
- Materials: 5.08%
- Energy: 1.27%
- Short-Term Securities: 0.02%
- Other: 0.15%
EWM has a selective strategy. The focus on financials might be an indication of acquiring shares in depressed stocks today. Time will tell if this weighting will pay off.
Jeffrey L. Stouffer is the principal of Mercantile Capital Group, a Herndon, Va.-based introducing broker registered with the CFTC and a member of the National Futures Association. He can be reached at mercapitalgroup@aol.com. Stouffer does not have any direct or indirect holdings in any of these ETFs.
