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The All Cap Value style ranks sixth out of the twelve styles as detailed in my Style Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 2 ETFs and 239 mutual funds in the All Cap Value style as of January 27th, 2014. Prior reports on the best & worst ETFs and mutual funds in every style are here.

Figure 1 ranks from best to worst the two all-cap value ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated all-cap value mutual funds. Not all All Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 9 to 1961), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too much value to Neutral-or-worse-rated stocks.

To identify the best and avoid the worst ETFs and mutual funds within the All Cap Value style, investors need a predictive rating based on (1) stocks ratings of the holdings and (2) the all-in expenses of each ETF and mutual fund. Investors need not rely on backward-looking ratings. My fund rating methodology is detailed here.

Investors seeking exposure to the All Cap Value style should buy one of the Attractive-or-better rated mutual funds from Figures 2.

Get my ratings on all ETFs and mutual funds in this style on my free mutual fund and ETF screener.

Figure 1: ETFs with the Best & Worst Ratings

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Figure 2: Mutual Funds with the Best & Worst Ratings - Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

City National Rochdale Socially Responsible Eq Fd (MUTF:AHRAX) and City National Rochdale Socially Responsible Eq Fd (MUTF:AHSRX) are excluded from Figure 2 because their total net assets (NYSEARCA:TNA) are below $100 million and do not meet our liquidity standards.

iShares Russell 3000 Value ETF (IWW) is my top-rated All Cap Value ETF and American Beacon Mid-Cap Value Fund (MUTF:AACIX) is my top-rated All Cap Value mutual fund. IWW earns my Dangerous rating while FDSWX earns my Attractive rating.

First Trust Multi Cap Value AlphaDEX Fund (NYSEARCA:FAB) is my worst-rated All Cap Value ETF and Northern Lights Fund Trust II: Linde Hansen Contrarian Value Fund (MUTF:LHVAX) is my worst-rated All Cap Value mutual fund. FAB earns my Dangerous rating while LHVAX earns my Very Dangerous rating.

Figure 3 shows that 247 out of the 2055 stocks (over 19% of the market value) in All Cap Value ETFs and mutual funds get an Attractive-or-better rating. However, no All Cap Value ETFs and only 3 out of 239 All Cap Value mutual funds (less than 3% of total net assets) get an Attractive-or-better rating. The takeaways are: mutual fund managers allocate too much capital to low-quality stocks and All Cap Value ETFs hold poor quality stocks.

Figure 3: All Cap Value Style Landscape For ETFs, Mutual Funds & Stocks

Sources: New Constructs, LLC and company filings

As detailed in "Cheap Funds Dupe Investors", the fund industry offers many cheap funds but very few funds with high-quality stocks, or with what I call good portfolio management.

Investors need to tread carefully when considering All Cap Value ETFs and mutual funds, as no ETFs and only 3 mutual funds in the All Cap Value style allocate enough value to Attractive-or-better-rated stocks to earn an Attractive rating.

Raytheon Company (NYSE:RTN) is one of my favorite stocks held by FDSWX and earns my Attractive rating. Raytheon has grown after-tax profits (NOPAT) by 12% compounded annually over the last nine years. The company has significantly increased its NOPAT margin to 10% in 2012 from 6% in 2005 and has generated positive and growing economic earnings over the last five years. Raytheon's robust growth is available at a considerable bargain. At its current valuation of ~$88/share, RTN has a price-to-economic book value ratio (PEBV) of 1.1. This valuation implies that the market expects Raytheon to grow NOPAT by only 10% over the remainder of its corporate life. I think that is a low hurdle for a company that has grown NOPAT by 12% compounded annually for nearly a decade. Strong growth and low expectations make RTN a good value for investors.

Ruby Tuesday, Inc. (NYSE:RT) is one of my least favorite stocks held by LHVAX and earns my Dangerous rating. Ruby Tuesday's after-tax profits (NOPAT) have declined by 9% compounded annually over the last 7 years. The company generates a bottom-quintile return on invested capital (ROIC) of only 4%. Only once in the last 16 years has it managed to generate positive economic earnings. If this track record of poor growth is not enough of a deterrent for investors, RT is also highly over-valued. To justify its current price of ~$6/share, RT would have to grow NOPAT by 11% compounded annually over the next 13 years. Declining profits and high expectations make RT a stock to avoid.

Figures 4 and 5 show the rating landscape of all All-Cap Value ETFs and mutual funds.

My Style Rankings for ETFs and Mutual Funds report ranks all styles and highlights those that offer the best investments.

Figure 4: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 5: Separating the Best Mutual Funds From the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

Review my full list of ratings and rankings along with reports on all 2 ETFs and 239 mutual funds in the All Cap Value style.

Jared Melnyk contributed to this report.

Disclosure: David Trainer and Jared Melnyk receive no compensation to write about any specific stock, style or theme.

Source: Best And Worst ETFs, Mutual Funds, And Key Holdings: All Cap Value Style