Best And Worst Q1 2020: Small Cap Blend ETFs And Mutual Funds

Summary

• The Small Cap Blend style ranks ninth in Q1'20.
• Based on an aggregation of ratings of 59 ETFs and 778 mutual funds in the Small Cap Blend style.
• REGL is our top-rated Small Cap Blend style ETF and RVVHX is our top-rated Small Cap Blend style mutual fund.
• Looking for a helping hand in the market? Members of Value Investing 2.0 get exclusive ideas and guidance to navigate any climate. Get started today »

The Small Cap Blend style ranks ninth out of the twelve fund styles as detailed in our Q1'20 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Blend style ranked eighth. It gets our Neutral rating, which is based on an aggregation of ratings of 59 ETFs and 778 mutual funds in the Small Cap Blend style. See a recap of our Q4'19 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Small Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 24 to 3,128). This variation creates drastically different investment implications and, therefore, ratings.

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

Our Robo-Analyst technology empowers our ETF and mutual fund rating methodology, which leverages our 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 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

12 ETFs are excluded from Figure 1 because their total net assets 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

Five mutual funds are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums.

ProShares S&P Mid Cap 400 Dividend Aristocrats ETF (REGL) is the top-rated Small Cap Blend ETF and Royce Small Cap Value Fund (RVVHX) is the top-rated Small Cap Blend mutual fund. Both earn a Very Attractive rating.

iShares Russell 2000 ETF (IWM) is the worst rated Small Cap Blend ETF and Small Cap ProFund (SLPSX) is the worst rated Small Cap Blend mutual fund. IWM earns an Unattractive rating and SLPSX 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 Small Cap Blend 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 Jan. 27, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.