We analyze all the ETFs and mutual funds in each sector and style and rank them from best to worst.

Looking at a universe of funds this large always reveals outliers, such as quality funds in an otherwise poorly rated style or dangerous funds in an Attractive sector.

Despite the overall Mid Cap Value style earning an Attractive rating, this fund lands in the Danger because it allocates too much capital to companies with low profitability and expensive valuations.

Below, we provide an excerpt from our latest Danger Zone report to show how our research helps you see danger before it crushes your portfolio. Get the full report a la carte here.

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Forward-Looking Research Protects Investors

While legacy fund research is backward-looking, our fund research is forward-looking and based on proven-superior fundamental analysis and ratings on each fund holding.

This fund earns our Very Unattractive (equivalent to Morningstar’s 1 Star) rating while Morningstar (MORN) gives the fund a 4 Star rating. Figure 1 shows how our forward-looking Fund Ratings compare to Morningstar’s ratings.

The other share classes of the mutual fund earn a 4 Star rating while we rate each Unattractive.

Figure 1: Danger Zone Fund Ratings

Sources: New Constructs, LLC, company filings, mutual fund filings, and Morningstar

Holdings Research Reveals a Lack of Quality Mid Cap Holdings

Our Robo-Analyst AI analyzed the holdings of this fund and found they are much worse than its much lower-cost benchmark, iShares Russell Mid-Cap Value ETF (IWS), which earns an Attractive rating.

Per Figure 2 in the full report, this fund allocates just 8% of its assets to Attractive-or-better rated stocks compared to 18% for IWS. On the flip side, this fund allocates 49% of its assets to Unattractive-or-worse rated stocks compared to 45% for IWS.

Market expectations for stocks held by this fund imply profits will grow more than the stock’s held by the benchmark and nearly the same amount as stocks held by SPY (measured by PEBV ratio and GAP).

Meanwhile, the fund’s holdings are less profitable (as measured by ROIC) than the benchmark and SPY’s holdings.

Put simply, this fund provides exposure to less profitable companies while taking much more valuation risk than the benchmark. Compared to the S&P 500, investors buying this fund are taking on as much valuation risk as owing the S&P 500, despite the stocks held by this fund being nearly 5x less profitable than the stocks in SPY.

…there’s much more in the full report. You can buy the report a la carte here.

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