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Best And Worst Q3’15: Small Cap Value ETFs, Mutual Funds And Key Holdings

Summary The Small Cap Value style ranks tenth in Q3’15. Based on an aggregation of ratings of 16 ETFs and 187 mutual funds. VBR is our top-rated Small Cap Value ETF and RSEIX is our top-rated Small Cap Value mutual fund. The Small Cap Value style ranks tenth out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Dangerous rating, which is based on an aggregation of ratings of 16 ETFs and 187 mutual funds in the Small Cap Value style. See a recap of our Q2’15 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 Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 14 to 1511). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Small Cap Value style should buy one of the Attractive-or-better rated mutual funds from Figure 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 Direxion Value Line Small & Mid Cap High Dividend ETF (NYSEARCA: VLSM ) and the First Trust Mid Cap Value AlphaDEX ETF (NYSEARCA: FNK ) 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 Vanguard Small-Cap Value ETF (NYSEARCA: VBR ) is the top-rated Small Cap Value ETF and the Royce Special Equity Fund (MUTF: RSEIX ) is the top-rated Small Cap Value mutual fund. VBR earns a Neutral rating and RSEIX earns an Attractive rating. The PowerShares Russell 2000 Pure Value Portfolio (NYSEARCA: PXSV ) is the worst-rated Small Cap Value ETF and the ASTON River Road Independent Value Fund (MUTF: ARIVX ) is the worst-rated Small Cap Value mutual fund. Both earn a Very Dangerous rating. Universal Insurance Holdings, Inc. (NYSE: UVE ), is one of our favorite stocks held by Small Cap value Funds. After-tax profit ( NOPAT ) growth has picked up in recent years, and NOPAT has grown by 53% compounded annually since 2011. Universal currently earns a top-quintile return on invested capital ( ROIC ) of 43%, which is almost three times the 16% earned in 2011. Universal has dug itself a strong competitive position within the insurance industry, but the stock price does not yet reflect the strong cash flows the company generates. At the current price of $25/share, Universal has a price to economic book value ( PEBV ) of 1.0. This ratio implies that the market expects the company to never meaningfully grow profits for the remainder of its corporate life. If Universal can grow NOPAT by 16%, less than a third of the current rate, compounded annually for the next 5 years , the stock is worth $45/share – an 80% upside. Acacia Research Corp (NASDAQ: ACTG ) is one of our least favorite stocks held by Small Cap Value funds and earns our Very Dangerous rating. Since 2012, Acacia’s NOPAT has fallen from $60 million to -$42 million. The company currently earns a bottom-quintile -10% ROIC, which is well below the 22% earned in 2012. It appears that the market has not taken into account these fundamental issues, as the stock remains overvalued. To justify the current price of $9/share, Acacia must immediately achieve a 10% NOPBT margin (compared to -42% in 2014) and grow revenue by 16% compounded annually for the next 13 years . Figures 3 and 4 show the rating landscape of all Small 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 Max Lee receive no compensation to write about any specific stock, style, 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. (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.

Best And Worst Q3’15: Small Cap Growth ETFs, Mutual Funds And Key Holdings

Summary The Small Cap Blend style ranks eleventh in Q3’15. Based on an aggregation of ratings of 11 ETFs and 353 mutual funds. SLYG is our top-rated Small Cap Growth ETF and VSCRX is our top-rated Small Cap Growth mutual fund. The Small Cap Growth style ranks eleventh out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Dangerous rating, which is based on an aggregation of ratings of 11 ETFs and 353 mutual funds in the Small Cap Growth style as of July 20, 2015. See a recap of our Q2’15 Style Ratings here. Figure 1 ranks from best to worst the eight small-cap growth ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated small-cap growth mutual funds. Not all Small Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 29 to 1218). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Small Cap Growth style should buy one of the Attractive-or-better rated mutual funds from Figure 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 Vanguard S&P Small-Cap 600 Growth ETF (NYSEARCA: VIOG ) and the PowerShares Russell 2000 Pure Growth Portfolio ETF (NYSEARCA: PXSG ) 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 Managed Portfolio Smith Group Small Cap Focused Growth Fund ( SGSNX , SGSVX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The State Street SPDR S&P 600 Small Cap Growth ETF (NYSEARCA: SLYG ) is the top-rated Small Cap Growth ETF and the Virtus Small Cap Core Fund (MUTF: VSCRX ) is the top-rated Small Cap Growth mutual fund. SLYG earns a Neutral rating and VSCRX earns an Attractive rating. The iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) is the worst-rated Small Cap Growth ETF and the Alpine Small Cap Fund (MUTF: ADIAX ) is the worst-rated Small Cap Growth mutual fund. IWO earns a Dangerous rating and ADIAX earns a Very Dangerous rating. Methode Electronics, Inc. (NYSE: MEI ) is one of our favorite stocks held by Small Cap Growth funds and earns our Very Attractive rating. Since 2009, the company has grown after-tax profit ( NOPAT ) by 61% compounded annually. Methode Electronics currently earns a top-quintile return on invested capital ( ROIC ) of 23% and boasts an impressive 12% NOPAT margin. Weak quarterly guidance caused an overblown decline of 50% in the stock in early July. We think MEI is undervalued. At the current price of $27/share, Methode Electronics has a price to economic book value ( PEBV ) ratio of 0.9. This ratio implies that the market expects the company’s profits to permanently decline by 10%. If Methode Electronics can grow NOPAT by just 5% compounded annually for the next five years , the stock is worth $33/share today – a 22% upside. Healthways Inc. (NASDAQ: HWAY ) is one of our least favorite stocks held by Small Cap Growth funds and earns our Dangerous rating. The company’s NOPAT has fallen by 28% compounded annually since 2010. ROIC dropped to a bottom-quintile 3% from 8% over the same time period. Healthways’ business fundamentals are showing signs of weakness. In stark contrast, the stock price reflects quite sanguine expectations about future cash flows. To justify the current price of $12/share, Healthways must grow NOPAT by 12% compounded annually for the next 14 years . Expecting Healthways not only to reverse its profit decline but also sustain such levels of profit growth for over a decade seems highly optimistic and risky. Figures 3 and 4 show the rating landscape of all Small Cap Growth 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 Max Lee receive no compensation to write about any specific stock, style, 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. (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.

Best And Worst Q3’15: All Cap Blend ETFs, Mutual Funds And Key Holdings

Summary The All Cap Blend style ranks third in Q3’15. Based on an aggregation of ratings of 66 ETFs and 675 mutual funds. DGRW is our top-rated All Cap Blend ETF and MFVZX is our top-rated All Cap Blend mutual fund. The All Cap Blend style ranks third out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on aggregation of ratings of 66 ETFs and 675 mutual funds in the All Cap Blend style. See a recap of our Q2’15 Style Ratings here. Figure 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all All Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 4 to 3794). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All 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 ValueShares U.S. Quantitative Value ETF (BATS: QVAL ) is excluded from Figure 1 because its 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 Walden Asset Management Fund (MUTF: WSBFX ) and the Jensen Quality Value Fund ( JNVIX , JNVSX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The WisdomTree U.S. Dividend Growth ETF (NASDAQ: DGRW ) is the top-rated All Cap Blend ETF and the MassMutual Select Focused Value Fund (MUTF: MFVZX ) is the top-rated All Cap Blend mutual fund. Both earn a Very Attractive rating. The PowerShares FTSE RAFI US 1500 Small-Mid Portfolio ETF (NASDAQ: PRFZ ) is the worst-rated All Cap Blend ETF and the Forward Dynamic Income Fund (MUTF: FDYAX ) is the worst-rated All Cap Blend mutual fund. PRFZ earns a Dangerous rating and FDYAX earns a Very Dangerous rating. Intel Corporation (NASDAQ: INTC ), is one of our favorite stocks held by All Cap Blend funds and earns our Very Attractive rating. Since 2009, Intel has grown after-tax profit (NOPAT) by 13% compounded annually. Much of this NOPAT growth can be attributed to Intel maintaining NOPAT margins upwards of 18% every year since 2008. The company currently earns a top-quintile return on invested capital ( ROIC ) of 21%, which is a slight improvement from 17% in 2013. Despite the fundamental strength of the business, the stock remains undervalued. At its current price of ~$29/share, Intel has a price to economic book value ( PEBV ) ratio of 0.8. This ratio implies that the market expects Intel’s NOPAT to permanently decline by 20%. If the company can grow NOPAT by just 3% compounded annually over the next ten years , the stock is worth $42/share – a 45% upside. Arbor Realty Trust, Inc. (NYSE: ABR ) is one of our least favorite stocks held by All Cap Blend funds and earns our Dangerous rating. Arbor Realty Trust never quite recovered from the financial crisis in 2008 and NOPAT has declined 55% compounded annually ever since. As opposed to Intel, Arbor Realty Trust has been unable to preserve its once-impressive NOPAT margin of 25% achieved in 2008 as it has since declined to 0.5% in 2014. The market has overlooked the declining nature of the business in favor of focusing on ABR’s 9% dividend yield. To justify its current price of $6/share, Arbor Realty Trust must grow NOPAT 29% compounded annually over the next 17 years . Almost no level of dividend yield can protect investors from the capital loss that would occur if ABR traded at its economic book value of ~$1/share. Figures 3 and 4 show the rating landscape of all All Cap Blend 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 Max Lee receive no compensation to write about any specific stock, style, 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. (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.