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Summary The Large Cap Growth style ranks fifth in Q4’15. Based on an aggregation of ratings of 24 ETFs and 604 mutual funds. QUAL is our top-rated Large Cap Growth style ETF and MIGNX is our top-rated Large Cap Growth style mutual fund. The Large Cap Growth style ranks fifth 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 Growth style ranked fourth. It gets our Neutral rating, which is based on an aggregation of ratings of 24 ETFs and 604 mutual funds in the Large Cap Growth 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 Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 647). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Growth 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 Destra Investment Trust II: Focused Equity Fund ( DFOIX , DFOCX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) is the top-rated Large Cap Growth ETF and Massachusetts Investors Growth Stock Fund (MUTF: MIGNX ) is the top-rated Large Cap Growth mutual fund. Both earn a Very Attractive rating. Columbia RP Focused Large Cap Growth ETF (NYSEARCA: RWG ) is the worst-rated Large Cap Growth ETF and Quaker Strategic Growth Fund (MUTF: QUAGX ) is the worst-rated Large Cap Growth mutual fund. RWG earns our Neutral rating while QUAGX earns our Very Dangerous rating. The Travelers Companies (NYSE: TRV ) is one of our favorite stocks held by Large Cap Growth ETFs and mutual funds and earns our Very Attractive rating. Over the past decade, Travelers has grown after-tax profits ( NOPAT ) by 14% compounded annually while improving NOPAT margins from 4% to 14%. Travelers currently earns a return on invested capital ( ROIC ) of 12%, up from 4% in 2004. Despite the stock gaining 5% year-to-date, shares remain undervalued. At its current price of $112/share, TRV has a price to economic book value ( PEBV ) ratio of 0.7. This ratio implies that the market expects Travelers NOPAT to permanently decline by 30%. If Travelers can grow NOPAT by just 1% compounded annually for the next five years , the stock is worth $172/share today – a 53% upside. Palo Alto Networks (NYSE: PANW ) is one of our least favorite stocks held by Large Cap Growth ETFs and mutual funds and earns our Very Dangerous rating. Palo Alto Networks went public in 2012 and since then its NOPAT has fallen from $2 million to -$106 million in 2015. The company currently earns a bottom quintile ROIC of -51%. Despite the downward spiral in profits, PANW has risen on investor exuberance in the cyber security sector, and shares are now significantly overvalued. To justify the current share price of $157/share, Palo Alto Networks must immediately achieve 5% pre-tax margins (-13% in 2015) and grow revenues by 31% compounded annually for the next 16 years. These expectations seem unrealistic given Palo Alto’s inability to grow profits since 2012. Figures 3 and 4 show the rating landscape of all Large Cap Growth 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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