Large Cap Value Style 3Q17: Best and Worst

The Large Cap Value style ranks third out of the twelve fund styles as detailed in our 3Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Value style ranked third as well. It gets our Neutral rating, which is based on an aggregation of ratings of 46 ETFs and 934 mutual funds in the Large Cap Value style as of July 25, 2017. See a recap of our 2Q17 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 Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 14 to 874). This variation creates drastically different investment implications and, therefore, ratings.

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

Our Robo-Analyst technology empowers our unique 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

First Trust High Income ETF (FTHI), Absolute Shares WBIT Tactical SMY Shares (WBIC), and First Trust Low Beta Income ETF (FTLB) 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

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

Sources: New Constructs, LLC and company filings

Buffalo Dividend Focus Fund (BUFDX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Cambria Shareholder Yield ETF (SYLD) is the top-rated Large Cap Value ETF and MFS Equity Income Fund (EQNTX) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating.

Cambria Value and Momentum ETF (VAMO) is the worst rated Large Cap Value ETF and Ivy Dividend Opportunities Fund (IVDYX) is the worst rated Large Cap Value mutual fund. VAMO earns an Unattractive rating and IVDYX earns a Very Unattractive 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

Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Large Cap Value 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 on July 26, 2017.

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

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