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David Trainer
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David is CEO of New Constructs (www.newconstructs.com), an independent research that specializes in unearthing key insights from the Financial Footnotes of Annual Reports. Having analyzed over 50,000 annual reports and their Financial Footnotes, New Constructs research regularly produces Hidden... More
My company:
New Constructs
My blog:
Hidden Gems and Red Flags
My book:
The Valuation Handbook
  • PowerShares Leads The “Most Attractive” ETFs 0 comments
    Jun 22, 2011 1:50 PM | about stocks: PKW, HDV, KBWP, PMA, XLV, AWH, STX, WDC, INTC, UEC

    Pow­er­Shares Buy­back Achiev­ers (PKW) is the #1 “most attrac­tive” ETF out of the 375+ ETFs we ranked accord­ing to our pre­dic­tive rat­ing system.

    These rank­ings come from the 375 reports we pub­lished today on ETFs. Each of our ETF reports pro­vides a pre­dic­tive rat­ing, just like a buy/hold/sell stock rating. We apply the same top-ranked rat­ing sys­tem we use for stocks to funds by com­bin­ing our mod­els for each of the stocks in the fund accord­ing to the fund’s allo­ca­tion to each stock.

    To access our ETF reports, enter the ETF ticker on our home page.

    Top 5 US Equity ETFs are below. Click on any of them for a free copy of our report:

    1. Pow­er­Shares Buy­back Achiev­ers (PKW)
    2. iShares High Div­i­dend Equity (HDV)
    3. Pow­er­Shares KBW Prop & Casu­alty Insur­ance (KBWP)
    4. Pow­er­Shares Active Mega Cap (PMA)
    5. Health Care Select Sec­tor SPDR (XLV)

    The top 5 ETFs are the best because they allo­cate the most cap­i­tal to the best stocks, those with our “attrac­tive” or “very attrac­tive” rat­ings. We report our top 40 “most attrac­tive” stocks monthly. Five stocks from June’s newslet­ter are:

    1. Allied World Assur­ance (AWH)
    2. Sea­gate Tech­nol­ogy (STX)
    3. West­ern Dig­i­tal (WDC)
    4. Intel Cor­po­ra­tion (INTC)
    5. Net 1 Ueps Tech­nolo­gies (UEPS)

    Fig­ure 1 details our rat­ings for all 375 ETFs we cur­rently cover. The pie chart on the left shows the allo­ca­tion of ETF assets by NAV accord­ing to our rat­ing sys­tem. The pie chart on the right shows the num­ber of ETFs that fall within each grade of our rat­ing sys­tem. Note that no funds get our best rat­ing: “most attrac­tive”. Our abil­ity to cover so many funds comes from the rig­or­ous research we per­form on 3000+ stocks.

    Fig­ure 1: Break­ing Down the ETF Universe


    Sources: New Con­structs, LLC and com­pany filings

    Unlike the other fund rat­ing sys­tems that too often dom­i­nate the dia­logue on funds, our sys­tem is not backward-looking and does not rely on past price performance.

    For proof that the backward-looking rat­ing sys­tem is becom­ing obso­lete look no far­ther than one of the biggest fund rat­ing firms in the world. Morn­ingstar recently announced that it was aug­ment­ing its entirely backward-looking “star” rat­ing sys­tem with an “ana­lyst” rat­ing sys­tem that observes expense ratios, man­ager and spon­sor gov­er­nance and past performance.

    This new rat­ing sys­tem, accord­ing to Morn­ingstar, is expected to add more pre­dic­tive value to its rat­ings. More is def­i­nitely bet­ter in this case since the pre­dic­tive value of the “star” rat­ings were per­ceived across the wealth man­age­ment indus­try as very low and often counter-predictive.

    Note that the under­ly­ing val­u­a­tion of the stocks held by a fund is not included any­where in the new “ana­lyst” rat­ing. There is no men­tion of the under­ly­ing prof­itabil­ity (or lack thereof) of the stocks held by the fund either.

    Admit­ting that a backward-looking “star” sys­tem was in need of improve­ment is a step in the right direc­tion, but Morn­ingstar is still far from offer­ing investors the pre­dic­tive value research they deserve in fund research.

    Investors deserve fund research that is rig­or­ous as indi­vid­ual stock research.

    For fund research to match the qual­ity of stock research, one must ana­lyze the invest­ment merit of each and every indi­vid­ual stock held by a fund. There is no worth­while short-cut to this daunt­ing chal­lenge, which has, until now, gone unmet.

    Let’s face it: high-quality research on one stock is dif­fi­cult and rare. The process of trans­lat­ing account­ing earn­ings into eco­nomic earn­ings, by itself, requires a great deal of work for every period of his­tory one cov­ers for a sin­gle company.

    I am not sur­prised that no other firms have been able to muster the resources to pro­vide investors with fund research based on rig­or­ous analy­sis of the under­ly­ing hold­ings for a large num­ber of funds.

    Most of the research firms that cover enough stocks to be able to per­form fund rat­ings based on a fund’s under­ly­ing hold­ings are Wall Street firms. And those firms are in the invest­ment bank­ing busi­ness, which has proven over time not to share the best inter­ests of the firms’ research clients.

    New Con­structs abil­ity to cover 3000+ stocks enables us to cover so many funds. Our patented research plat­form for revers­ing account­ing dis­tor­tions and dis­counted cash flow analy­sis lever­ages data from the finan­cial foot­notes to deliver research of unri­valed qual­ity and accu­racy on both stocks and funds.

    Today we pub­lished research reports with pre­dic­tive rat­ings for nearly 400 ETFs. And today investors have access to ETF research that is as rig­or­ous at stock research.

    To access our reports, enter the ETF ticker on our home page.



    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STX, WDC, INTC over the next 72 hours.
    Stocks: PKW, HDV, KBWP, PMA, XLV, AWH, STX, WDC, INTC, UEC
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