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Summary The Small Cap Blend style ranks last in Q4’15. Based on an aggregation of ratings of 28 ETFs and 642 mutual funds. VB is our top-rated Small Cap Blend style ETF and PCOEX is our top-rated Small Cap Blend style mutual fund. The Small Cap Blend style ranks twelfth out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Small Cap Blend style ranked last as well. It gets our Dangerous rating, which is based on an aggregation of ratings of 28 ETFs and 642 mutual funds in the Small 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 Small Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 2053). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Small Cap Blend style should buy one of the Attractive-or-better rated mutual funds from Figures 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 5 ETFs 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 Boston Trust & Walden Funds Mid Cap Fund (MUTF: WAMFX ) and the Boston Trust & Walden Funds SMID Cap Innovations Fund (MUTF: WASMX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Vanguard Small-Cap ETF (NYSEARCA: VB ) is the top-rated Small Cap Blend ETF and the Putnam Capital Opportunities Fund (MUTF: PCOEX ) is the top-rated Small Cap Blend mutual fund. VB earns a Neutral rating and PCOEX earns a Very Attractive rating. The State Street SPDR Russell 2000 Low Volatility ETF (NYSEARCA: SMLV ) is the worst-rated Small Cap Blend ETF and the ProFunds Small Cap Fund (MUTF: SLPSX ) is the worst-rated Small Cap Blend mutual fund. SMLV earns a Dangerous rating and SLPSX earns a Very Dangerous Rating. The Goodyear Tire & Rubber Company (NASDAQ: GT ) is one of our favorite stocks held by VB and earns our Very Attractive rating. Since 2010, the company has grown after-tax profits (NOPAT) by 18% compounded annually and doubled its NOPAT margin. Goodyear has also improved its return on invested capital ( ROIC ) from 5% to 9% over the same timeframe. Despite the impressive profit growth, GT remains undervalued. At its current price of $35/share, GT has a price to economic book value ( PEBV ) ratio of 1.0. This ratio means that the market expects Goodyear to never meaningfully grow NOPAT over the remaining life of the corporation. If Goodyear can grow NOPAT by 7% compounded annually for the next five years , which is well below the historic growth rate, the company is worth $49/share today – a 40% upside. Ruby Tuesday (NYSE: RT ) is one of our least favorite stocks held by Small Cap Blend ETFs and mutual funds and earns our Dangerous rating. Since 2010, Ruby Tuesday’s NOPAT has declined by 11% compounded annually while its NOPAT margins have fallen from 9% in 2010 to 3% on a trailing-twelve-month basis. Ruby Tuesday’s ROIC has followed this downward trend and is currently a bottom quintile 3%, down from 6% in 2011. To justify the current price of $5/share, Ruby Tuesday must grow NOPAT by 5% compounded annually for the next 12 years . This expectation is awfully optimistic for a business that has failed to grow profits at all over the past five years. Figures 3 and 4 show the rating landscape of all Small 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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