As many of you may know, the live-traded Very Attractive Stocks Index, aka the Bloomberg New Constructs Ratings VA-1 Index (ticker: BNCVA1T:IND), outperformed the S&P 500 by 9.2% in 1Q25, rising 4.6% compared to the S&P 500 falling 4.6%.
This outperformance highlights how our Stock Ratings deliver novel alpha right here and now.
Here’s the good news for fund investors. Our ETF and mutual fund ratings are based on our Stock Ratings. After all, a fund is only as good as the stocks it holds. So it makes sense that to properly evaluate a fund, one must evaluate each of the fund’s holdings. It also makes sense that if Very Attractive-rated stocks outperform as a group, then so should the Very Attractive-rated mutual funds.
After scouring our database of ~7,600+ ETFs and mutual funds, we found a Very Attractive-rated fund that successfully picks good companies at good prices while charging below average fees.
The information below comes from the recent Long Idea report on this mutual fund, available to Pro and Institutional members. You can buy the full report a la carte here.
We hope you enjoy this unique mutual fund research. No other firm comes close to matching our diligence. Feel free to share with friends and colleagues. And, let us know what you think.
Forward-Looking Research Reveals a Very Attractive Fund
This fund earns our Very Attractive Predictive Fund Rating, while Morningstar gives it a 2-Star (backward-looking) rating. Our analysis of holdings reveals the fund allocates more to good stocks, i.e. profitable companies with undervalued stock prices, than its benchmark. See Figure 1 in the full report.
We leverage our Robo-Analyst technology to assess a mutual fund’s portfolio quality by analyzing the fund’s individual stock holdings.
Through this rigorous analysis, we find that the fund allocates 36% of its assets to Attractive-or-better rated stocks compared to just 15% for the benchmark. On the flip side, the fund allocates just 19% of its assets to Unattractive-or-worse rated stocks compared to 33% for the benchmark.
Per Figure 2 in the full report, our holdings analysis also reveals the fund’s portfolio is of much higher quality than the S&P 500 as represented by State Street SPDR S&P 500 ETF Trust (SPY). SPY earns our Attractive rating, but only 10% of SPY’s portfolio is allocated to stocks rated Attractive-or-better and 31% is allocated to stocks rated Unattractive-or-worse.
Quality Stocks Drive Very Attractive Risk/Reward Rating
Figure 3 in the full report contains our detailed rating for the mutual fund, which includes each of the criteria we use to rate all mutual funds under coverage. These criteria are the same for our Stock Rating Methodology, because the performance of a mutual fund’s holdings is responsible for the performance of the mutual fund after fees. Figure 3 in the full report also compares the mutual funds rating with those of its benchmark and SPY.
The mutual fund’s holdings are superior or equal to the benchmark in all five and superior or equal to SPY in four out five of the criteria that make up our Portfolio Management rating. Specifically:
- The fund’s holdings generate positive economic earnings, same as the benchmark and SPY.
- The fund’s ROIC is 18% and higher than the 16% earned by the benchmark’s holdings, but lower than the 33% earned by SPY’s holdings.
- The fund’s free cash flow (FCF) yield of 4% is higher than the benchmark and SPY’s at 2%.
- The price-to-economic book value (PEBV) ratio for the fund’s holdings is 1.9, which is much lower than the benchmark at 2.6 and SPY’s at 3.2.
- Our discounted cash flow analysis reveals an average market implied growth appreciation period (GAP) of just 37 years for the fund’s holdings compared to 50 years for the benchmark and 66 years for SPY.
Market expectations for stocks held by the fund imply profits will grow much less than the stock’s held by the benchmark (measured by PEBV ratio and the market-implied GAP).
In other words, profitability is higher (measured by ROIC), yet the stocks held by the fund are significantly cheaper (as measured by PEBV and the market-implied GAP).
….there’s much more in the full report. You can buy the report a la carte here.
Or, become a Professional or Institutional member – they get all Long Idea reports.