Niemann Capital Management started substituting exchange-traded funds for mutual funds late last year, initially in response to an offer for free trades. It hasn't looked back.

The California firm, which oversees about $1.1bn for financial adviser clients, is a relatively frequent trader, typically holding positions for six to 15 months. Unlike traditional stock pickers that pour over corporate balance sheets, Niemann uses computer models to rank potentially attractive mutual funds based on recent fluctuations in their share prices.