Q1 2019 Sector Ratings For ETFs And Mutual Funds
Summary
- Our sector ratings are based on the normalized aggregation of our stock ratings for every stock 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.
- Looking for more? I update all of my investing ideas and strategies to members of Value Investing 2.0 . Get started today »
At the beginning of the first quarter of 2019, the Consumer Non-cyclicals, Financials, and Basic Materials sectors earn Attractive-or-better ratings. Our sector ratings are based on the normalized aggregation of our stock ratings for every stock in each sector. Our stock ratings are based on five criteria that assess a firm's business strength and valuation. See last quarter's Sector Ratings here.
Investors looking for sector funds that hold quality stocks should look no further than the Consumer Non-cyclicals 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[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund's holdings.[2]
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 ETF (FSTA) is the top rated Consumer Non-cyclicals fund. It gets our Very Attractive rating by allocating over 72% of its value to Attractive-or-better-rated stocks.
Rydex Series Real Estate Fund (RYREX) is the worst rated Real Estate 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 8.39%.
Figure 2 shows the distribution of our Predictive Ratings for all sector ETFs and mutual funds.
Figure 2: Distribution of ETFs & 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 12 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 Very Attractive-rated funds.
Figure 4: Very Attractive ETFs & 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 & 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 in each sector allocated to Attractive-rated funds.
Figure 6: Attractive ETFs & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 7 presents the data charted in Figure 6.
Figure 7: Attractive ETFs & 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 in each sector allocated to Neutral-rated funds.
Figure 8: Neutral ETFs & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 9 presents the data charted in Figure 8.
Figure 9: Neutral ETFs & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 10 presents a mapping of Unattractive funds by sector. The chart shows the number of Unattractive funds in each sector and the percentage of assets in each sector allocated to Unattractive-rated funds.
The landscape of sector ETFs and mutual funds is littered with Unattractive funds. Investors in Real Estate have put over 75% of their assets in Unattractive-rated funds.
Figure 10: Unattractive ETFs & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 11 presents the data charted in Figure 10.
Figure 11: Unattractive ETFs & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
Figure 12 presents a mapping of Very Unattractive funds by sector. The chart shows the number of Very Unattractive funds in each sector and the percentage of assets in each sector allocated to Very Unattractive-rated funds.
Figure 12: Very Unattractive ETFs & 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 & Mutual Funds by Sector
Source: New Constructs, LLC and company filings
This article originally published on January 8, 2019.
Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, sector or theme.
[1]Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.
[2]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. 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.
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.