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The Mid Cap Value style ranks tenth out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Mid Cap Value style ranked seventh. It gets our Dangerous rating, which is based on aggregation of ratings of 9 ETFs and 124 mutual funds in the Mid Cap Value style. See a recap of our Q4’15 Style Ratings here. Figure 1 ranks from best to worst all nine Mid-Cap Value ETFs 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 36 to 1761). 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. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Nuance Mid Cap Value Fund (MUTF: NMVLX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Vident Core US Equity Fund (NASDAQ: VUSE ) is the top-rated Mid Cap Value ETF and the BMO Mid-Cap Value Fund (MUTF: BMVGX ) is the top-rated Mid Cap Value mutual fund. VUSE earns a Very Attractive rating and BMVGX earns an Attractive rating. The PowerShares Russell Midcap Pure Value Portfolio (NYSEARCA: PXMV ) is the worst-rated Mid Cap Value ETF and the Nuveen Mid Cap Value Fund (MUTF: FASEX ) is the worst-rated Mid Cap Value mutual fund. PXMV earns a Dangerous rating and FASEX earns a Very Dangerous rating. East West Bancorp (NASDAQ: EWBC ) is one of our favorite stocks held by BMVGX and earns an Attractive rating. Over the past decade, East West Bancorp has grown after-tax profit ( NOPAT ) by 14% compounded annually. Since 2008, the company has improved its return on invested capital ( ROIC ) from 2% to 14% for the last twelve months. Best of all, the recent share price decline has provided a great buying opportunity. At its current price of $31/share, East West Bancorp has a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects East West Bancorp’s NOPAT to permanently decline by 10% from current levels. If EWBC can grow NOPAT by just 7% compounded annually for the next decade , the stock is worth $39/share today – a 26% upside. American Campus Communities (NYSE: ACC ) is one of our least favorite stocks held by TCVAX and earns a Dangerous rating. Despite positive GAAP net income, which doesn’t fully account for changes to the balance sheet, American Campus Communities has generated negative economic earnings in each year since 2005. Over that same time frame, the company’s already low ROIC of 5% in 2005 has fallen to a bottom quintile 4% over the last twelve months. Despite the fundamental issues above, ACC is significantly overvalued. To justify its current stock price of $43/share, ACC must stop destroying shareholder value and grow NOPAT by 12% compounded annually for the next decade . This expectation seems awfully optimistic given ACC’s track record. 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 Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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