Industrials Sector 1Q17: Best and Worst

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The Industrials sector ranks second out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Industrials sector ranked fourth. It gets our Neutral rating, which is based on an aggregation of ratings of 20 ETFs and 16 mutual funds in the Industrials sector as of January 19, 2017. See a recap of our 4Q16 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Industrials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 353). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Industrials sector 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

industrials1q17_-figure-1

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

Sources: New Constructs, LLC and company filings

US Global Jets ETF (JETS) is excluded from Figure 1 because its 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

industrials1q17_figure2* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Four mutual funds are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. See our mutual fund screener for more details.

State Street SPDR S&P Homebuilders ETF (XHB) is the top-rated Industrials ETF and Fidelity Environment and Alternative Energy Portfolio (FSLEX) is the top-rated Industrials mutual fund. Both earn a Very Attractive rating.

VanEck Vectors Environmental Services ETF (EVX) is the worst rated Industrials ETF and Fidelity Advisors Industrials Fund (FCLAX) is the worst rated Industrials mutual fund. EVX earns our Dangerous rating and FCLAX earns our Very Dangerous rating.

394 stocks of the 3000+ we cover are classified as Industrials stocks.

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 Industrials ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

industrials1q17_figure3

Sources: New Constructs, LLC and company filings

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

industrials1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on January 23, 2017.

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

Click here to download a PDF of this report.

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