The legendary "Value Line effect," the long-standing tendency for Value Line's top-ranking stocks to beat the broad market, has proved difficult for mutual funds to match. First Trust Value Line 100 Fund (AMEX:FVL), a closed-end fund, and PowerShares Value Line Timeliness Select Portfolio (AMEX:PIV), an exchange-traded fund, use these ratings as the foundation for their investments. A look at these funds reveals a clear choice for investors who look to benefit from the Value Line effect.

Value Line effect
A portfolio of Value Line's top-ranked stocks, beginning in 1965 and updated at the beginning of each year, would have shown a gain of 22,792% through June 2006. Impressive, especially when compared with the 1,123% gain in the Dow Jones Industrial Average over the same time.

Value Line constructs its Timeliness rankings so there are 100 stocks ranked No. 1, with changes made weekly. If you think you can create your own portfolio following this system, it's not as easy as it sounds. You would end up with a large portfolio requiring frequent transactions.

Trying to keep up with the index
The PowerShares Value Line Timeliness Select Portfolio started in December 2005 and tracks the Value Line Timeliness Select Index. Using timeliness, safety, and technical measures, compilers of the index seek to identify the 50 highest-ranking common stocks of companies with the potential to outperform the U.S. equity market. The PowerShares portfolio is updated quarterly, which could result in its performance being lower than the index's because it continues to hold stocks after Value Line has downgraded them.

Consumer discretionary and staples stocks make up one-quarter of the fund, while industrials and information technology comprise roughly a third. The portfolio's net assets are close to $190 million, and with an average market cap of $4.7 billion for its investments, it's solidly in the large-cap arena. Top holdings, at just more than 2% each, include Akamai (NASDAQ:AKAM), Midwest Air (AMEX:MEH), American Eagle Outfitters (NASDAQ:AEOS), Sotheby's (NYSE:BID), and Christopher & Banks (NYSE:CBK).

A contender
"I coulda been a contenda" may well be suitable to the situation the First Trust Value Line 100 Fund finds itself in as it faces off against the PowerShares Value Line Timeliness Select Portfolio. The First Trust fund came to market in 2003 and issued 17.49 million shares. Since then, no shares have been issued and the funds assets, at roughly $330 million, are about average for an equity closed-end fund.

The First Trust fund invests in a diversified portfolio of the 100 stocks ranked No. 1 by Value Line's Timeliness ranking system. The average market cap for a company in the fund is $5 billion, putting it in the large-cap universe. The top five holdings, at roughly 1% of assets each, include Research In Motion, Hewlett-Packard, Akamai, Garmin, and Schering-Plough.

Which one is the best?
The First Trust Value Line 100 Fund's performance of 3.55% year to date is slightly ahead of the PowerShares Value Line Timeliness Select Portfolio's 2.03%. Regardless of this difference, there are a number of reasons why the PowerShares portfolio is the better of the two.

The PowerShares portfolio is an ETF, which gives it many structural advantages to the closed-end First Trust fund. While the First Trust fund is trading at about an 8.8% discount from its net asset value, or NAV -- down from roughly 15% a year ago -- the PowerShares portfolio's ETF structure makes it unlikely to trade at a discount for very long. Unlike ETFs, closed-end funds have no mechanism to prevent them from trading at significant premiums or discounts. Finally, the PowerShares Value Line Timeliness Select Portfolio's expense ratio is two-thirds of First Trust Value Line 100 Fund's -- 0.71 vs. 0.95 -- and it seems it would be Foolish to not take advantage of that.

For more information on exchange-traded funds, visit the Fool's ETF Center .

What type of investor are you? Akamai is a Rule Breakers recommendation, while American Eagle and Garmin are Stock Advisor picks. For more on mutual funds, see Shannon Zimmerman's latest views with a free trial toChampion Funds.

Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She does not own shares in any of the funds or companies mentioned in this article. The Motley Fool has a disclosure policy.