The Large Cap Blend style ranks first out of the twelve fund styles as detailed in our 1Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Blend style ranked first as well. It gets our Attractive rating, which is based on an aggregation of ratings of 31 ETFs and 886 mutual funds in the Large Cap Blend 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 Large Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 16 to 1,383). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Large Cap Blend 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
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
PowerShares S&P 500 Downside Hedged Portfolio (PHDG) 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
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
WisdomTree Large Cap Dividend Fund (DLN) is the top-rated Large Cap Blend ETF and Optimum Large Cap Value (OALVX) is the top-rated Large Cap Blend mutual fund. Both earn a Very Attractive rating.
PowerShares Russell 1000 Equal Weight Portfolio (EQAL) is the worst rated Large Cap Blend ETF and Victory RS Large Cap Alpha Fund (GPAFX) is the worst rated Large Cap Blend mutual fund. EQAL earns a Neutral rating and GPAFX 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 Large Cap Blend ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst Funds
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds From the Worst Funds
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.