Every quarter we analyze all the ETFs and mutual funds in every sector and style and rank the sector/styles from best to worst.
Just because a style earns a good rating doesn’t mean every fund within it is good. To separate the best from the worst, we analyze the holdings of each fund. Our Predictive Fund Ratings are based on the ratings of the fund’s holdings. After all, if a fund holds bad stocks, performance is likely to be bad too.
By analyzing the holdings of every fund under coverage, we find the needles in the haystack, whether that is a good fund in a bad style, or a bad fund in a good style. This week’s Danger Zone pick is the latter.
Despite the overall Mid Cap Value style earning an Attractive rating, this fund allocates too much capital to companies with low profitability and expensive valuations.
Below, we provide an excerpt from our latest Danger Zone report. Get the full report a la carte here.
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Forward-Looking Research Protects Investors
While legacy fund research is backward-looking, our fund research is forward-looking and based on proven-superior fundamental analysis and ratings on each individual holding.
This fund earns our Very Unattractive (equivalent to Morningstar’s 1 Star) rating while Morningstar (MORN) gives the fund a 3 Star rating.
Figure 1: Comparing Fund Ratings
Sources: New Constructs, LLC, company filings, mutual fund filings, and Morningstar
Holdings Research Reveals a Low-Quality Mid Cap Value Portfolio
Our Robo-Analyst AI analyzed the holdings of this fund and finds that they are much worse than its lower-cost benchmark, which earns a Neutral rating.
Per Figure 2 in the full report, the fund allocates 62% of its assets to Unattractive-or-worse rated stocks compared to 47% for the benchmark. On the flip side, the fund allocates only 11% of its assets to Attractive-or-better rated stocks compared to 15% for the benchmark.
Per Figure 3 in the full report, our holdings analysis also reveals the fund’s portfolio is lower quality than the S&P 500, as represented by State Street SPDR S&P 500 ETF (SPY), which earns an Attractive rating.
At 49% of its portfolio, SPY allocates less to Unattractive-or-worse rated stocks compared to this fund (at 62%).
Expensive Stocks Drive Very Unattractive Risk/Reward Rating
Figure 4 in the full report shows our detailed rating for this fund, which includes each of the criteria we use to rate all ETFs and mutual funds under coverage. These criteria are the same for our Stock Rating Methodology, as the performance of a mutual fund equals the performance of its holdings minus fees.
Figure 4 also shows this fund is inferior or equal to its benchmark in all five of the criteria that make up our Portfolio Management rating.
…there’s much more in the full report. You can buy the report a la carte here.
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