The Small Cap Growth style ranks last out of the twelve fund styles as detailed in our Q2'20 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Growth style ranked last as well. It gets our Very Unattractive rating, which is based on an aggregation of ratings of 20 ETFs and 562 mutual funds in the Small Cap Growth style. See a recap of our Q1'20 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 Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 28 to 3230). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Small Cap Growth style should buy one of the Attractive rated mutual funds from Figure 2.
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
Invesco S&P Small Cap 600 Pure Growth ETF (RZG), Janus Henderson Small/Mid Cap Growth Alpha ETF (JSMD), and Janus Henderson Small Cap Growth Alpha ETF (JSML) are excluded from Figure 1 because their total net assets (NYSEARCA: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
State Street SPDR S&P 400 Mid Cap Growth (MDYG) is the top-rated Small Cap Growth ETF and Virtus KAR Small Cap Value Fund (VQSRX) is the top-rated Small Cap Growth mutual fund. MDYG earns a Neutral rating and VQSRX earns an Attractive rating.
RBB Fund MFAM Small Cap Growth ETF (MFMS) is the worst rated Small Cap Growth ETF and Dunham Small Cap Growth Fund (DADGX) is the worst rated Small Cap Growth mutual fund. Both earn 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. We perform this diligence with scale. 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 Growth ETFs and mutual funds.
Figure 3: Separating the Best ETFs from the Worst Funds
Sources: New Constructs, LLC and company filingsFigure 4: Separating the Best Mutual Funds from the Worst Funds
Sources: New Constructs, LLC and company filingsOur Robo-Analyst technology empowers our ETF and mutual fund rating methodology, which leverages our analysis of each fund’s holdings.
This article originally published on April 27, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
Get our long and short/warning ideas. Access to top accounting and finance experts.
Deliverables:
1. Daily - long & short idea updates, forensic accounting insights, chat
2. Weekly - exclusive access to in-depth long & short ideas
3. Monthly - 40 large, 40 small cap ideas from the Most Attractive & Most Dangerous Stocks Model Portfolios
