The Mid Cap Blend style ranks sixth out of the twelve fund styles as detailed in our 3Q21 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Mid Cap Blend style ranked sixth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 28 ETFs and 305 mutual funds in the Mid Cap Blend style as of July 14, 2021. See a recap of our 2Q21 Style Ratings here.

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Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Mid Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 2,378). This variation creates drastically different investment implications and, therefore, ratings.

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

The best fundamental data in the world, proven in The Journal of Financial Economics, drives our research. Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[2] 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

Four ETFs (MIDF, AFMC, USEQ, STMB) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums or they operate a levered strategy that increases risk.

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

Two mutual funds (AADGX and WASMX) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums

Invesco S&P Mid Cap Quality ETF (XMHQ) is the top-rated Mid Cap Blend ETF and Madison Mid Cap Fund (MMCRX) is the top-rated Mid Cap Blend mutual fund. Both earn a Very Attractive rating.

JPMorgan BetaBuilders U.S. Mid Cap Equity ETF (BBMC) is the worst rated Mid Cap Blend ETF and Donoghue Forlines Momentum Fund (MOJAX) is the worst rated Mid Cap Blend mutual fund. BBMC earns an Unattractive rating and MOJAX 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 Mid 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 on July 16, 2021.

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

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[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] See how our models and financial ratios are superior to Bloomberg and Capital IQ’s (SPGI) analytics in the detailed appendix of this paper.

Click here to download a PDF of this report.

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