Best And Worst Q4'16: Mid Cap Blend ETFs, Mutual Funds And Key Holdings

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Includes: CLGX, GTAFX, PGR, QMCVX, REGL, RYJ
by: David Trainer

Summary

The Mid Cap Blend style ranks seventh in Q4'16.

Based on an aggregation of ratings of 18 ETFs and 394 mutual funds.

REGL is our top-rated Mid Cap Blend ETF and GTAFX is our top-rated Mid Cap Blend mutual fund.

The Mid Cap Blend style ranks seventh out of the twelve fund styles as detailed in our Q4'16 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Mid Cap Blend style ranked seventh as well. It gets our Neutral rating, which is based on an aggregation of ratings of 18 ETFs and 394 mutual funds in the Mid Cap Blend 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 Mid Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 22 to 3,213). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Mid Cap Blend 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

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

Sources: New Constructs, LLC and company filings

Absolute Shares WBI Tactical SMS (WBIA, WBID, WBIB) 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

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

Sources: New Constructs, LLC and company filings

The Ultimus Managers Trust Barrow Value Opportunity Fund (MUTF:BALIX), the Boston Trust Walden Mid Cap Fund (MUTF:WAMFX), and the Boston Trust Mid Cap Fund (MUTF:BTMFX) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums.

The ProShares S&P MidCap 400 Dividend Aristocrats ETF (NYSEARCA:REGL) is the top-rated Mid Cap Blend ETF and the Invesco Mid Cap Core Equity Fund (MUTF:GTAFX) is the top-rated Mid Cap Blend mutual fund. REGL earns an Attractive rating and GTAFX earns a Very Attractive rating.

The Guggenheim Raymond James Equity ETF (NYSEARCA:RYJ) is the worst rated Mid Cap Blend ETF and the Quaker Mid Cap Value fund (MUTF:QMCVX) is the worst rated Mid Cap Blend mutual fund. RYJ earns a Dangerous rating and QMCVX earns a Very Dangerous rating.

The Progressive Corp (NYSE:PGR) is one of our favorite stocks held by GTAFX and earns an Attractive rating. Since 2001, PGR has grown after-tax profit (NOPAT) by 8% compounded annually. The company has improved its return on invested capital (ROIC) from 13% in 2001 to a top-quintile 15% over the trailing twelve months (TTM). With the exception of 2008, the company has earned a double digit ROIC in every year since 2001. Despite the strong fundamentals, PGR remains undervalued. At its current price of $32/share, PGR has a price-to-economic book value (PEBV) ratio of 1.2. This ratio means the market expects PGR's NOPAT to grow by only 20% over the remaining life of the firm. If PGR can continue growing NOPAT by just 8% compounded annually for the next decade, the stock is worth $58/share today ­- an 81% upside.

CoreLogic Inc. (NYSE:CLGX) is one of our least favorite stocks held by Mid-Cap Blend funds, and earns a Very Dangerous rating. Over the past decade, CoreLogic's NOPAT has declined by 14% compounded annually. The company's ROIC has fallen from 14% in 2005 to a bottom-quintile 4% TTM. Despite the deteriorating fundamentals, CLGX remains priced for significant profit growth. To justify its current price of $42/share, CLGX must grow NOPAT by 11% compounded annually for the next 11 years. This expectation seems overly optimistic given CLGX's recent profit struggles.

Figures 3 and 4 show the rating landscape of all Mid Cap Blend ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst Funds

Sources: New Constructs, LLC and company filings

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

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.

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