Best And Worst Q2'17: Energy ETFs And Mutual Funds

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Includes: CGEYX, PHO, PXE, RYESX
by: David Trainer

Summary

The Energy sector ranks last in Q2'17.

Based on an aggregation of ratings of 22 ETFs and 110 mutual funds.

PHO is our top-rated Energy ETF and CGEYX is our top-rated Energy mutual fund.

The Energy sector ranks last out of the ten sectors as detailed in our Q2'17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Energy sector ranked last as well. It gets our Very Dangerous rating, which is based on an aggregation of ratings of 22 ETFs and 110 mutual funds in the Energy sector. See a recap of our Q1'17 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 132). This variation creates drastically different investment implications and, therefore, ratings.

Investors should not buy any Energy ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off.

Our robo-analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund's holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

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

Five ETFs are excluded from Figure 1 because their 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 RidgeWorth Capital Innovations Global Resources & Infrastructure Fund (MUTF:INNNX) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums.

The PowerShares Water Resources Portfolio (NASDAQ:PHO) is the top-rated Energy ETF and the Columbia Global Energy & Natural Resources Fund (MUTF:CGEYX) is the top-rated Energy mutual fund. PHO earns a Neutral rating and CGEYX earns a Very Dangerous rating.

The PowerShares Dynamic Energy Exploration & Production Portfolio (NYSEARCA:PXE) is the worst rated Energy ETF and the Rydex Energy Services Fund (MUTF:RYESX) is the worst rated Energy mutual fund. Both earn a Very Dangerous rating.

169 stocks of the 3000+ we cover are classified as Energy stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund's performance is only as good as its holdings' performance. Don't just take our word for it, see what Barron's says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our robo-analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Energy ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

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

Sources: New Constructs, LLC and company filings

This article originally published on April 5, 2017.

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector 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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