The Mid Cap Value style ranks ninth out of the twelve fund styles as detailed in our 4Q19 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Mid Cap Value style ranked seventh. It gets our Neutral rating, which is based on an aggregation of ratings of 11 ETFs and 167 mutual funds in the Mid Cap Value style as of October 18, 2019. See a recap of our 3Q19 Style Ratings here.
Figure 1 ranks from best to worst the eight 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 26 to 676). 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[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[2] Only our research utilizes the superior data and earnings adjustments featured by the HBS & MIT Sloan paper, “Core Earnings: New Data and Evidence.” 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
First Trust Dorsey Wright Momentum & Value ETF (DVLU) and First Trust Multi Cap Value AlphaDEX Fund (FAB) 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
Vident Core U.S. Equity Fund (VUSE) is the top-rated Mid Cap Value ETF and Fidelity Advisor Mid Cap Value Fund (FIDFX) is the top-rated Mid Cap Value mutual fund. Both earn a Very Attractive rating.
iShares Russell Mid Cap Value ETF (IWS) is the worst rated Mid Cap Value ETF and Northern Lights Linde Hansen Contrarian Value Fund (LHVAX) is the worst rated Mid Cap Value mutual fund. IWS earns an Unattractive rating and LHVAX 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 23, 2019.
Disclosure: David Trainer, Kyle Guske II, and Sam McBride 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] This paper compares our analytics on a mega cap company to other major providers. The Appendix details exactly how we stack up.