Finding the best ETFs is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available?

Don’t Trust ETF Labels

There are at least 59 different All Cap Blend ETFs and at least 276 ETFs across all styles. Do investors need that many choices? How different can the ETFs be?

Those 59 All Cap Blend ETFs are very different. With anywhere from 11 to 3770 holdings, many of these All Cap Blend ETFs have drastically different portfolios, creating drastically different investment implications.

The same is true for the ETFs in any other style, as each offers a very different mix of good and bad stocks. The Large Cap Blend style ranks first. Small Cap Blend ranks last. Details on the Best & Worst ETFs in each style are here.

A Recipe for Paralysis By Analysis

We firmly believe ETFs for a given style should not all be that different. We think the large number of All Cap Blend (or any other) style of ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, that can be as many as 3770 stocks, and sometimes even more, for one ETF.

Any investor worth his or her salt recognizes that analyzing the holdings of an ETF is critical to finding the best ETF. Figure 1 shows our top rated ETF for each style. Note there are no ETFs in the All Cap Growth or All Cap Value styles.

Figure 1: The Best ETF in Each Style


Sources:   New Constructs, LLC and company filings

How to Avoid “The Danger Within

Why do you need to know the holdings of ETFs before you buy?

You need to be sure you do not buy a fund that might blow up. Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the ETF’s performance will be bad.


If Only Investors Could Find Funds Rated by Their Holdings…

New Constructs covers over 3000 stocks and is known for the due diligence we do for each stock we cover. Accordingly, our coverage of ETFs leverages the diligence we do on each stock by rating ETFs based on the aggregated ratings of the stocks each ETF holds.

State Street SPDR Dow Jones Industrial Average (DIA) is the top-rated Large Cap Value ETF and the overall top rated fund of the 276 style ETFs that we cover.

The worst ETF in Figure 1 is Guggenheim S&P Small Cap 600 Pure Growth (RZG), which gets a Neutral or 3 star rating. One would think ETF providers could do better for this style.

To see ratings on all the ETFs we cover, start your Gold Membership today.

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

Photo Credit: GotCredit (Flickr)

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