The Mid Cap Value style ranks eighth out of the twelve fund styles as detailed in our 4Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Mid Cap Value style ranked eighth as well. It gets our Unattractive rating, which is based on an aggregation of ratings of nine ETFs and 152 mutual funds in the Mid Cap Value style as of October 19, 2017. See a recap of our 3Q17 Style Ratings here.
Figure 1 ranks from best to worst the eight Mid Cap Value ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated mid-cap value mutual funds. Not all Mid Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 22 to 2207). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Mid 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.[1] 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
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
ValueShares U.S. Quantitative Value ETF (QVAL) 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
iShares Morningstar Mid Cap Value ETF (JKI) is the top-rated Mid Cap Value ETF and Harbor Mid Cap Value Fund (HNMVX) is the top-rated Mid Cap Value mutual fund. Both earn an Attractive rating.
iShares Russell Mid Cap Value ETF (IWS) is the worst rated Mid Cap Value ETF and Hotchkis & Wiley Mid Cap Value Fund (HWMAX) is the worst rated Mid Cap Value mutual fund. IWS earns a Neutral rating and HWMAX 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 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 October 19, 2017.
Disclosure: David Trainer, Kyle Guske II, and Kenneth James receive no compensation to write about any specific stock, style, or theme.
Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.
[1] Ernst & Young’s recent white paper “Getting ROIC Right” proves the superiority of our holdings research and analytics.
Click here to download a PDF of this report.