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Summary Small Cap Blend style ranks last in Q2’15. Based on an aggregation of ratings of 29 ETFs and 678 mutual funds. EES is our top rated Small Cap Blend ETF and PXQSX is our top rated Small Cap Blend mutual fund. The Small Cap Blend style ranks 12th out of the 12 fund styles as detailed in our Q2’15 Style Rankings report . It gets our Dangerous rating, which is based on an aggregation of ratings of 29 ETFs and 678 mutual funds in the Small Cap Blend style. 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 24 to 2544). 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 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. A total of six 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. A total of five mutual funds are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. The WisdomTree SmallCap Earnings ETF (NYSEARCA: EES ) is our top-rated Small Cap Blend Style ETF and the Virtus Quality Small-Cap Fund (MUTF: PXQSX ) is our top-rated Small Cap Blend Style mutual fund. EES earns a Neutral rating and PXQSX earns an Attractive rating. One of our favorite stocks held by Small Cap Blend funds is The Buckle Inc. (NYSE: BKE ). Buckle is a casual apparel, footwear and accessories retailer. As a retailer, the company has achieved very consistent financial performance. Over the last decade Buckle has grown after-tax operating profit ( NOPAT ) by 17% compounded annually. Buckle’s return on invested capital ( ROIC ) in 2014 was 32%, placing it in the top quintile of all companies we cover. Over the past seven years ROIC has never fallen below 28% indicating a very resilient business franchise. Given its strong fundamentals, The Buckle is currently undervalued. At its current price of ~$47/share, BKE has a price to economic book value ( PEBV ) ratio of 1.0. This ratio implies the market expects Buckle’s NOPAT to never grow from current levels. However if the company is able to grow NOPAT by just 6% compounded annually for the next 10 years the stock is worth $73/share today – a 55% upside. The iShares Micro-Cap ETF (NYSEARCA: IWC ) is our worst-rated Small Cap Blend style ETF and the Chartwell Small Cap Value Fund (MUTF: CWSVX ) is our worst-rated Small Cap Blend style mutual fund. Both earn our Very Dangerous rating. One of our least favorite stocks held by Small Cap Blend funds is Mobile Mini (NASDAQ: MINI ). Since 2009, Mobile Mini’s NOPAT has not grown at all, and in fact has declined by $2 million. The company’s ROIC has not risen either, and at only 4% in 2014, ranks in the bottom quintile of all companies we cover. To top it off, Mobile Mini has not generated positive economic earnings in any year for the last 16 years. However, to justify its current price of ~$43/share, Mobile Mini must grow NOPAT by 13% compounded annually for the next 18 years . A history of stagnant NOPAT coupled with poor profitability make Mobile Mini an overvalued stock. The expectations implied by the current price are just too high given the actual economics of the business. 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) Figure 4: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources Figures 1-4: New Constructs, LLC and company filings D isclosure: David Trainer owns BKE. David Trainer and Allen L. Jackson receive no compensation to write about any specific stock, style, style or theme. Disclosure: I am/we are long BKE. (More…) 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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