Q4 2017 Sector Ratings For ETFs And Mutual Funds
Summary
- Our sector ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each sector.
- The primary driver behind an Attractive fund rating is good portfolio management (stock picking) combined with low total annual costs.
- Cheap funds can dupe investors and investors should invest only in funds with good stocks and low fees.
At the beginning of the fourth quarter of 2017, only the Consumer Staples and Financials sectors earn an Attractive-or-better rating. Our sector ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each sector. See last quarter’s Sector Ratings here.
Investors looking for sector funds that hold quality stocks should look no further than the Consumer Staples and Financials sectors. These sectors house the highest rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management, or good stock picking, with low total annual costs.
Attractive-or-better ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) cheap funds can dupe investors and (2) investors should invest only in funds with good stocks and low fees.
Our Robo-Analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings[1]. See Figures 4 through 13 for a detailed breakdown of ratings distributions by sector.
Figure 1: Ratings for All Sectors
Source: New Constructs, LLC and company filings
To earn an Attractive-or-better Predictive Rating, an ETF or mutual fund must have high-quality holdings and low costs. Only the top 30% of all ETFs and mutual funds earn our Attractive or better ratings.
Fidelity MSCI Consumer Staples Index (NYSEARCA:FSTA) is the top rated Consumer Staples fund. It gets our Very Attractive rating by allocating over 68% of its value to Attractive-or-better-rated stocks.
Saratoga Energy and Basic Materials Portfolio (SBMBX) is the worst rated Energy fund. It gets our Very Unattractive rating by allocating over 59% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors annual costs of 7.12%.
Figure 2 shows the distribution of our Predictive Ratings for all sector ETFs and mutual funds.
Figure 2: Distribution of ETFs and Mutual Funds (Assets and Count) by Predictive Rating
Source: New Constructs, LLC and company filings
Figure 3 offers additional details on the quality of the sector funds. Note that the average total annual cost of Very Unattractive funds is almost five times that of Very Attractive funds.
Figure 3: Predictive Rating Distribution Stats
* Avg TAC = Weighted Average Total Annual Costs
Source: New Constructs, LLC and company filings
This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs. Investors deserve to have the best of both and we are here to give it to them.
Ratings by Sector
Figure 4 presents a mapping of Very Attractive funds by sector. The chart shows the number of Very Attractive funds in each sector and the percentage of assets in each sector allocated to funds that are rated Very Attractive.
Figure 4: Very Attractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 5 presents the data charted in Figure 4.
Figure 5: Very Attractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 6 presents a mapping of Attractive funds by sector. The chart shows the number of Attractive funds in each sector and the percentage of assets allocated to Attractive-rated funds in each sector.
Figure 6: Attractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 7 presents the data charted in Figure 6.
Figure 7: Attractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 8 presents a mapping of Neutral funds by sector. The chart shows the number of Neutral funds in each sector and the percentage of assets allocated to Neutral-rated funds in each sector.
Figure 8: Neutral ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 9 presents the data charted in Figure 8.
Figure 9: Neutral ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 10 presents a mapping of Unattractive funds by fund sector. The chart shows the number of Unattractive funds in each sector and the percentage of assets allocated to Unattractive-rated funds in each sector.
The landscape of sector ETFs and mutual funds is littered with Unattractive funds. Investors in Real Estate have put over 47% of their assets in Unattractive-rated funds.
Figure 10: Unattractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 11 presents the data charted in Figure 10.
Figure 11: Unattractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 12 presents a mapping of Very Unattractive funds by fund sector. The chart shows the number of Very Unattractive funds in each sector and the percentage of assets in each sector allocated to funds that are rated Very Unattractive.
Figure 12: Very Unattractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 13 presents the data charted in Figure 12.
Figure 13: Very Unattractive ETFs and Mutual Funds by Sector
Source: New Constructs, LLC and company filings
This article originally published on October 3, 2017.
Disclosure: David Trainer, Kyle Guske II, and Kenneth James receive no compensation to write about any specific stock, sector or theme.
[1] Ernst & Young’s recent white paper “Getting ROIC Right” proves the superiority of our holdings research and analytics.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.