Best And Worst Q4'16: Large Cap Growth ETFs, Mutual Funds And Key Holdings

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Includes: BMY, CNRUX, DFS, MTUM, QTRAX, QUAL
by: David Trainer

Summary

The Large Cap Growth style ranks fourth in Q4'16.

Based on an aggregation of ratings of 16 ETFs and 653 mutual funds.

QUAL is our top-rated Large Cap Growth ETF and CNRUX is our top-rated Large Cap Growth mutual fund.

The Large Cap Growth style ranks fourth out of the twelve fund styles as detailed in our Q4'16 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Growth style ranked fourth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 16 ETFs and 653 mutual funds in the Large Cap Growth style. See a recap of our Q3'16 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Large Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 1029). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Large Cap Growth style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Figure 1: ETFs with the Best & Worst Ratings - Top 5

Click to enlarge

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

Sources: New Constructs, LLC and company filings

The State Street SPDR MSCI World Strategic Factors ETF (NYSEARCA:QWLD) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

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

Click to enlarge

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

Sources: New Constructs, LLC and company filings

The Nuveen Growth Fund's (NSRGX, NBGRX, NSRCX, NSAGX), and the Frontier MFG Global Plus Fund (FMGPX, FMPSX) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums.

The iShares Edge MSCI USA Quality Factor (NYSEARCA:QUAL) is the top-rated Large Cap Growth ETF and the City National Rochdale US Core Equity Fund (MUTF:CNRUX) is the top-rated Large Cap Growth mutual fund. Both earn a Very Attractive rating.

The iShares Edge MSCI USA Momentum Factor (NYSEARCA:MTUM) is the worst rated Large Cap Growth ETF and the Quaker Global Tactical Allocation Fund (MUTF:QTRAX) is the worst rated Large Cap Growth mutual fund. MTUM is rated Neutral and QTRAX is rated Very Dangerous.

Discover Financial Services (NYSE:DFS) is one of our favorite stocks held by Large Cap Growth ETFs and mutual funds and earns a Very Attractive rating. Since 2007, DFS has grown after-tax profit (NOPAT) by 12% compounded annually. The company has improved its return on invested capital (ROIC) from 14% in 2007 to a top-quintile 21% over the last twelve months (TTM). Despite the fundamental improvement in the business, DFS remains undervalued. At its current price of $56/share, DFS has a price-to-economic book value (PEBV) ratio of 0.7. This ratio means the market expects DFS' NOPAT to permanently decline by 30%. If DFS can grow NOPAT by 4% compounded annually over the next decade, the stock is worth $88/share today - a 55% upside.

Bristol Myers Squibb Company (NYSE:BMY) is one of our least favorite stocks held by ELGAX and earns a Dangerous rating. Over the past decade, BMY's NOPAT has declined by 6% compounded annually. The company's ROIC has fallen from 18% in 2005 to 11% over the last twelve months. Despite the deterioration of the business' operations, BMY remains priced for significant profit growth. In order to justify its current price of $50/share, BMY must grow NOPAT by 12% compounded annually for the next 13 years. This scenario seems overly optimistic given BMY's profit decline over the past decade.

Figures 3 and 4 show the rating landscape of all Large Cap Growth ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst Funds

Click to enlarge

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Funds

Click to enlarge

Sources: New Constructs, LLC and company filings

This article originally published here on November 4, 2016.

Disclosure: David Trainer, Kyle Guske and Kyle Martone receive no compensation to write about any specific stock, style, or theme.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.