Q4 2017 Investment Style Ratings For ETFs And Mutual Funds

Nov. 30, 2017 10:19 AM ETDSGDX, YAFIX

Summary

  • Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style.
  • The primary driver behind an Attractive fund rating is good portfolio management (stock picking) combined with low total annual costs.
  • In the fourth quarter of 2017, only the Large Cap Blend style receives an Attractive or better rating.

At the beginning of the fourth quarter of 2017, only the Large Cap Blend style earns an Attractive-or-better rating. Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style. See last quarter’s Style Ratings here.

Investors looking for style funds that hold quality stocks should look no further than the Large Cap Blend and Large Cap Value styles. These styles house the most Attractive-or-better 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 investment style.

Figure 1: Ratings for All Investment Styles

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 rating.

AMG Yacktman Focused Fund (YAFIX) is the top rated Large Cap Blend fund. It gets our Very Attractive rating by allocating over 44% of its value to Attractive-or-better-rated stocks.

Delaware Small Cap Growth Fund (DSGDX) is the worst rated Small Cap Growth fund. It gets our Very Unattractive rating by allocating over 42% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors total annual costs of 4.42%.

Figure 2 shows the distribution of our Predictive Ratings for all investment style 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 investment style funds. Note that the average total annual cost of Very Unattractive funds is over 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 Investment Style

Figure 4 presents a mapping of Very Attractive funds by investment style. The chart shows the number of Very Attractive funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Attractive.

Figure 4: Very Attractive ETFs and Mutual Funds by Investment Style

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 Investment Style

Source: New Constructs, LLC and company filings

Figure 6 presents a mapping of Attractive funds by investment style. The chart shows the number of Attractive funds in each style and the percentage of assets allocated to Attractive-rated funds in each style.

Figure 6: Attractive ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 7 presents the data charted in Figure 6.

Figure 7: Attractive ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 8 presents a mapping of Neutral funds by investment style. The chart shows the number of Neutral funds in each investment style and the percentage of assets allocated to Neutral-rated funds in each style.

Figure 8: Neutral ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 9 presents the data charted in Figure 8.

Figure 9: Neutral ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 10 presents a mapping of Unattractive funds by fund style. The chart shows the number of Unattractive funds in each investment style and the percentage of assets allocated to Unattractive-rated funds in each style.

The landscape of style ETFs and mutual funds is littered with Unattractive funds. Investors in Small Cap Value have put over 40% of their assets in Unattractive-rated funds.

Figure 10: Unattractive ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 11 presents the data charted in Figure 10.

Figure 11: Unattractive ETFs and Mutual Funds by Investment Style

Source: New Constructs, LLC and company filings

Figure 12 presents a mapping of Very Unattractive funds by fund style. The chart shows the number of Very Unattractive funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Unattractive.

Figure 12: Very Unattractive ETFs and Mutual Funds by Investment Style

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 Investment Style

Source: New Constructs, LLC and company filings

This article originally published here on October 16, 2017.

Disclosure: David Trainer, Kyle Guske II, and Kenneth James receive no compensation to write about any specific stock, sector or theme.

This article was written by

David Trainer profile picture
15.82K Followers
Best fundamental research: most rigorous long & short ideas
New Constructs is an independent research technology firm that provides unrivaled insights into the fundamentals and valuation of private & public businesses. Combining human expertise with machine learning and NLP, the firm shines light into the dark corners (e.g. footnotes) of millions of financial filings and provides superior investment research. The firm's Robo-Analyst technology is the first-ever vertically integrated investment research platform: performing data collection, financial modeling and assigning investment ratings to over 10,000 securities - automatically. This new technology is research automation at its best according to:


   1. Harvard Business School & MIT Sloan prove our fundamental data is superior.


   2. Ernst & Young proves the superiority of our financial analytics over Capital IQ & Bloomberg.


   3. Indiana Kelly School of Business proves our stock ratings outperform human analysts.



If these prestigious institutions trust us so much that they decided to publish official papers to prove the superiority of our research, then you can safely trust us, too.

New Constructs' clients include investors of all types from quant funds like GSAM who subscribe to proprietary data feeds, advisors and individuals who subscribe to our investment research directly through our website.


David is CEO of New Constructs (www.newconstructs.com). David is a distinguished investment strategist and corporate finance expert. He was a 5-yr member of FASB's Investors Advisory Committee. He is author of the Chapter “Modern Tools for Valuation” in The Valuation Handbook (Wiley Finance 2010). 


Follow

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.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.