Best And Worst Q4 2019: Large-Cap Value ETFs And Mutual Funds

The Large-Cap Value style ranks second out of the 12 fund styles as detailed in our Q4'19 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large-Cap Value style ranked third. It gets our Attractive rating, which is based on an aggregation of ratings of 67 ETFs and 883 mutual funds in the Large-Cap Value style. See a recap of our Q3'19 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Large-Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 14 to 1,198). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Large-Cap Value style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

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] 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 and Worst Ratings – Top 5

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

Sources: New Constructs, LLC and company filings

Columbia Sustainable U.S. Equity Income ETF (ESGS), Global X S&P 500 Quality Dividend ETF (QDIV), American Century STOXX U.S. Quality Value ETF (VALQ), and FlexShares Quality Dividend Dynamic Index Fund (QDYN) 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 and 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

Stock Dividend Fund (SDIVX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

First Trust Rising Dividend Achievers ETF (RDVY) is the top-rated Large Cap Value ETF and Legg Mason Brandywine Global Diversified U.S. Large Cap Value Fund (LBISX) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating.

Invesco S&P High Dividend Low Volatility ETF (XSHD) is the worst rated Large-Cap Value ETF and Rational Dividend Capture Fund (HDCAX) is the worst rated Large Cap Value mutual fund. XSHD earns an Unattractive rating and HDCAX earns a Very Unattractive rating.

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.

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. Technology may be the only solution to the dual mandate for research: Cut costs and fulfill the fiduciary duty of care. 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 Large Cap Value 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 on October 23, 2019.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, 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] This paper compares our analytics on a mega cap company to other major providers. The Appendix details exactly how we stack up.

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.