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Summary The Large Cap Blend style ranks second in Q4’15. Based on an aggregation of ratings of 21 ETFs and 841 mutual funds. UDOW is our top-rated Large Cap Blend style ETF and CMIIX is our top-rated Large Cap Blend style mutual fund. The Large Cap Blend style ranks second out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Large Cap Blend style ranked second as well. It gets our Attractive rating, which is based on aggregation of ratings of 21 ETFs and 841 mutual funds in the Large Cap Blend style. See a recap of our Q3’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Large Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 19 to 1396). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Blend 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 The Arrow QVM Equity Factor (NYSEARCA: QVM ) and the First trust High Income ETF (NASDAQ: FTHI ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. 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 Green Owl Intrinsic Value Fund (MUTF: GOWLX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The ProShares UltraPro Dow30 ETF (NYSEARCA: UDOW ) is the top-rated Large Cap Blend ETF and the Calvert Large Cap Core Portfolio (MUTF: CMIIX ) is the top-rated Large Cap Blend mutual fund. Both earn a Very Attractive rating. The Ark Innovation ETF (NYSEARCA: ARKK ) is the worst-rated Large Cap Blend ETF and the Lazard Enhanced Opportunities Portfolio (MUTF: LEOOX ) is the worst-rated Large Cap Blend mutual fund. Both earn a Very Dangerous rating. Wells Fargo & Company (NYSE: WFC ) is one of our favorite stocks held by CMIIX and earns our Attractive rating. Since 2010, Wells Fargo has grown after-tax profits ( NOPAT ) by 14% compounded annually, while simultaneously improving NOPAT margins from 15% to 25%. The company has improved its return on invested capital ( ROIC ) from 8% to 10% over the same timeframe. Despite the business strength, WFC has fallen 4% in the past three months, which has left shares undervalued. At its current price of $55/share, Wells Fargo has a price to economic book value ratio ( PEBV ) of 1.1. This ratio implies that the market expects Wells Fargo’s NOPAT to increase by no more than 10% over its corporate life. If Wells Fargo can grow NOPAT by just 5% compounded annually for the next decade , the stock is worth $68/share today – a 24% upside. Stratasys (NASDAQ: SSYS ) is one of our least favorite stocks held by ARKK and earns our Dangerous rating. Since Stratasys went public in 2012, its NOPAT has fallen from $19 million to -$33 million. In addition to falling profits, Stratasys currently earns a bottom quintile -9% ROIC, which is down from 1% in 2012. Despite the stock being down over 80% from its record high, Stratasys shares could fall even further as the expectations baked into the stock price remain unrealistic. To justify the current price of $23/share, Stratasys must immediately achieve 1% pre-tax margins (-40% in 2014) and grow revenues by 27% compounded annually for the next 16 years. Investors would be wise to steer clear of SSYS. Figures 3 and 4 show the rating landscape of all Large Cap Blend ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (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 Thaxston McKee receive no compensation to write about any specific stock, style, or theme. Scalper1 News
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