All Cap Value Style 1Q17: Best and Worst

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The All Cap Value style ranks fourth out of the twelve fund styles as detailed in our 1Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the All Cap Value style ranked fifth. It gets our Neutral rating, which is based on an aggregation of ratings of 12 ETFs and 309 mutual funds in the All Cap Value style as of January 30, 2017. See a recap of our 4Q16 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all, All Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 16 to 2,064). This variation creates drastically different investment implications and, therefore, ratings.

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

Here is our ETF and mutual fund rating methodology, which leverages our rigorous 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 & Worst Ratings – Top 5

newconstructs_allcapvalue_etfratings_1q17

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

Sources: New Constructs, LLC and company filings

State Street SPDR S&P 1500 Value TILT ETF (VLU) and ETF Series Solutions Deep Value (DVP) 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 & Worst Ratings – Top 5

newconstructs_allcapvalue_mfratings_1q17

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

Sources: New Constructs, LLC and company filings

Knights of Columbus Large Cap Value Funds’ (KCVVX, KCVSX, KCVIX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

PowerShares FTSE RAFI US 1000 Portfolio (PRF) is the top-rated All Cap Value ETF and Fidelity Advisor Equity Value Fund (FAVCX) is the top-rated All Cap Value mutual fund. Both earn a Very Attractive rating.

Guggenheim S&P 500 Pure Value ETF (RPV) is the worst rated All Cap Value ETF and American Beacon Mid-Cap Value Fund (ABMAX) is the worst rated All Cap Value mutual fund. RPV earns a Neutral rating and ABMAX earns a Very Dangerous 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. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Figures 3 and 4 show the rating landscape of all, All Cap Value ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst Funds

newconstructs_allcapvalue_etfratingslandscape_1q17

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Funds

newconstructs_allcapvalue_mfratingslandscape_1q17

Sources: New Constructs, LLC and company filings

This article originally published here on January 30, 2017.

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

Click here to download a PDF of this report.

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