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Tamila McDonald

Tamila McDonald is a financial writer who worked as AFCPE Certified Financial Counselor for the US Army. She provided financial counseling to thousands of soldiers returning from combat as well as other Wounded Warriors. Mrs. McDonald received her financial training through the military financial readiness program. Mrs. McDonald is also a 20-year Military Veteran of the US ARMY.

As a financial advisor for military families, I know that determining which funds to invest in is rarely an easy decision. If a potential investor is interested in investing in a mutual fund, for example, they may have a number of concerns, such as questions about the fund’s composition and the fund’s management, as well as doubts about fees or other worries. When considering these common apprehensions, one question in particular stands out as being both especially important to know and difficult to answer, and that is

“What exchange-traded funds (ETFs) are the most similar to the mutual fund I am going to recommend to clients?”

The ability to identify a passively managed analogue of a mutual fund can greatly benefit both investor and advisor, but in the past has been tedious and time-consuming to do for even a modest number of funds, and nearly impossible to do comprehensively. Fortunately, new technology by Raltin offers a way to get an extensive analysis quickly and easily.

Raltin uses end of day closing prices for 40,000 stocks, ETFs and mutual funds to run more than 2.5 billion correlations for all combinations to identify the top alternative ETFs for all mutual funds. This service makes it easy for financial advisors to answer the critical question: “What are the most similar ETFs to the mutual fund I am recommending?”

Investment Opportunities Using Raltin

Using Raltin, one is able to find similar investment opportunities for any stock, ETF, or mutual fund, as well as identify their level of correlation. Three major mutual funds have been selected and alternative ETFs have been found using Raltin, which are depicted in the table below.

Mutual Fund

Alternative ETF 1 (Correlation Score)

Alternative ETF 2

(Correlation Score)

Alternative ETF 3

(Correlation Score)

FBGRX - Fidelity® Blue Chip Growth Fund

MGK - Vanguard Mega Cap Growth ETF (.94)

SCHG - Schwab US Large-Cap Growth ETF (.94)

IWF - iShares Russell 1000 Growth (.94)

ROGSX - Red Oak Technology Select Portfolio

RYT - Guggenheim S&P 500 Eq Wt Technology ETF (.94)

FTEC - Fidelity MSCI Information Tech ETF (.94)

VGT - Vanguard Information Technology ETF (.94)

USIBX - USAA Intermediate Term Bond Fund

BND - Vanguard Total Bond Market ETF (.87)

IEF - iShares 7-10 Year Treasury Bond (.85)

BIV - Vanguard Interm-Term Bond ETF (.86)

The first example fund considered is the Fidelity® Blue Chip Growth Fund (FBGRX), which could be a suitable mutual fund for an investor looking for returns over the longer term. FBGRX is a long-term growth fund and invests the majority (over 80%) of its assets in companies whose stock is included in the S&P 500 or the Dow Jones Industrial Average, or companies with market capitalizations of at least $1 billion.

Looking at the table, the ETFs that are the best alternatives to FBGRX are MGK, SCHG, and IWF. MGK is the Vanguard Mega Cap Growth ETF and tracks the performance of the CRSP U.S. Mega Cap Growth Index, which is comprised of large-cap stocks such as Facebook Inc. and Alphabet Inc. with high expected growth. SCHG is another large-cap growth ETF that includes the large-cap growth portion of the Dow Jones.

IWF is a similar case; it is designed to track the investment results of the Russell 1000® Growth Index, which itself follows the performance of large- and mid-cap growth sectors. The data from Raltin shows an incredibly high degree of correlation between the mutual fund and each of the alternate ETFs (.94), which, upon an understanding of the goals and investments of each fund, comes as no surprise.

Each fund is designed to track large-cap growth in the equities market, and the composite stocks of each fund are therefore likely to be affected by external (economic, political, etc.) forces in the same way. The possibility is then open for an advisor or investor to make a recommendation or decision based almost entirely on the choice between a mutual fund and an ETF while largely controlling for composition and asset allocation.

The second and third mutual funds and their related ETFs tell similar stories. The Red Oak Technology Select Portfolio (ROGSX) is a mutual fund that invests primarily in technology sector stocks, with more weight toward large- and mid-cap companies. The alternate ETFs (RYT, FTEC, and VGT) all possess similar mandates in the area of technology investments, and as a result are exceptionally correlated with ROGSX.

The USAA Intermediate Term Bond Fund (USIBX) is a mutual fund that mainly holds investment-grade securities with an average maturity between three and ten years. As expected, the recommended ETFs (BND, UST, BIV) all possess similar securities holdings to USIBX, which results in a high degree of comparability between the funds.

Alternative ETFs Used in Place of Mutual Funds

In effect, we can see that using Raltin provides alternative ETFs that have the potential to be used in place of a given mutual fund. This can offer significant benefits to both end clients as well as financial advisors.

Highly correlated ETFs offer the opportunity to make the same substantive choices about an investment that a mutual fund would allow, while providing the ability to avoid the burdens that accompany active-management, such as higher fees and tax-inefficiency. These benefits can be realized both by the investor, who sees a higher return, as well as by the financial advisor, who has a happier client.

Learn more about the Raltin’s correlation methodology and how Raltin serves financial advisors.

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