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Best And Worst Q1’16: Small Cap Value ETFs, Mutual Funds And Key Holdings

The Small Cap Value style ranks eleventh out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Small Cap Value style ranked tenth. It gets our Dangerous rating, which is based on aggregation of ratings of 19 ETFs and 268 mutual funds in the Small Cap Value style. See a recap of our Q4’15 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 13 to 1482). 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 First Trust Mid Cap Value AlphaDEX Fund (NYSEARCA: FNK ) and the Guggenheim S&P MidCap 400 Pure Value ETF (NYSEARCA: RFV ) 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 iShares Morningstar Small-Cap Value ETF (NYSEARCA: JKL ) 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. JKL earns a Neutral rating and RSEIX earns a Very Attractive rating. The Guggenheim S&P SmallCap 600 Pure Value ETF (NYSEARCA: RZV ) is the worst-rated Small Cap Value ETF and The Putnam Small Cap Value Fund (MUTF: PSLAX ) is the worst-rated Small Cap Value mutual fund. RZV earns a Dangerous rating and PSLAX earns a Very Dangerous rating. Standard Motor Products (NYSE: SMP ) is one of our favorite stocks held by RSEIX and earns a Very Attractive rating. Since 2004, Standard Motor Products has grown after-tax profit ( NOPAT ) by 19% compounded annually. Over this same time, the company has greatly improved its return on invested capital ( ROIC ) from 2% in 2004 to 13% over the last twelve months. Despite this long-term success, SMP is undervalued at current prices. At its current price of $33/share, SMP has a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects SMP’s NOPAT to permanently decline by 10%. If Standard Motor Products can grow NOPAT by just 5% compounded annually for the next decade , the stock is worth $47/share today – a 42% upside. Raven Industries (NASDAQ: RAVN ) is one of our least favorite stocks held by ARIVX and earns a Dangerous rating. From 2005 to the last twelve months, Raven Industries has failed to grow NOPAT. Over the same time, the company’s profitability has tanked, with ROIC falling from 29% to 7%. With such poor fundamentals, it should be no surprise that RAVN is down 20% over the past decade. What may surprise you though is that RAVN remains overvalued. To justify its current price, Raven Industries must grow NOPAT by 6% compounded annually for the next 21 years . This expectation seems rather optimistic given Raven’s poor track record of profit growth. 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 Kyle Guske II receive no compensation to write about any specific stock, 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. 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 Q1’16: Small Cap Growth ETFs, Mutual Funds And Key Holdings

The Small Cap Growth style ranks last out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Small Cap Growth style ranked eleventh. It gets our Dangerous rating, which is based on aggregation of ratings of 12 ETFs and 451 mutual funds in the Small Cap Growth style. See a recap of our Q4’15 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 Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 28 to 1873). 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 AlphaMark Actively Managed Small Cap ETF (NASDAQ: SMCP ) and the First Trust Small Cap Growth AlphaDEX Fund (NYSEARCA: FYC ) 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 Smith Group Small Cap Focused Growth Fund (MUTF: SGSNX ) (MUTF: SGSVX ) and the World Funds Trust: Toreador Explorer Fund (MUTF: TMRZX ) (MUTF: TMRLX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The SPDR S&P 600 Small Cap Growth ETF (NYSEARCA: SLYG ) is the top-rated Small Cap Growth ETF and the PNC Small Cap Fund (MUTF: PPCIX ) is the top-rated Small Cap Growth mutual fund. SLYG earns a Neutral rating and PPCIX earns an Attractive rating. The iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) is the worst-rated Small Cap Growth ETF and the PACE Small/Medium Co Growth Equity Investments (MUTF: PQUAX ) is the worst-rated Small Cap Growth mutual fund. IWO earns a Neutral rating and PQUAX earns a Very Dangerous rating. Credit Acceptance Corp (NASDAQ: CACC ) is one of our favorite stocks held by PPCIX and earns a Very Attractive rating. Over the past decade, Credit Acceptance Corp has grown its after-tax profit ( NOPAT ) by 19% compounded annually. Over this same time, Credit Acceptance has improved its return on invested capital ( ROIC ) from 11% to a top quintile 26%. Despite the improvement in business fundamentals, CACC remains undervalued. At its current price of $210/share, CACC has a price-to-economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects Credit Acceptance Corp’s NOPAT to permanently decline by 20%. If CACC can grow NOPAT by just 9% compounded annually for the next decade , the stock is worth $437/share today – a 108% upside. Beacon Roofing Supply (NASDAQ: BECN ) is one of our least favorite stocks held by PQUAX and earns a Very Dangerous rating. Over the past decade, Beacon’s economic earnings have declined from $8 million to -$11 million and have been negative for each of the past three years. Beacon’s ROIC has fallen from 12% in 2005 to a bottom quintile 4% over the last twelve months. Given the business struggles at Beacon, its stock price looks significantly overvalued. To justify its current price of $38/share, BECN must grow NOPAT by 15% compounded annually for the next 16 years . Those expectations look awfully high compared to the company’s recent declines in profits. 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 Kyle Guske II receive no compensation to write about any specific stock, 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. 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 Q1’16: Large Cap Value ETFs, Mutual Funds And Key Holdings

The Large Cap Value style ranks second out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Large Cap Value style ranked first. It gets our Neutral rating, which is based on aggregation of ratings of 46 ETFs and 915 mutual funds in the Large Cap Value style. See a recap of our Q4’15 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 Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 8 to 1021). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Value 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 Four 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 Legg Mason BW Dynamic Large Cap Value Fund ( LMBGX , LMBEX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The FlexShares Quality Dividend Index Fund (NYSEARCA: QDF ) is the top-rated Large Cap Value ETF and the Brown Advisory Equity Income Fund (MUTF: BAFDX ) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating. The Global X Super Dividend US ETF (NYSEARCA: DIV ) is the worst-rated Large Cap Value ETF and the Copeland International Risk Managed Dividend Growth Fund (MUTF: IDVGX ) is the worst-rated Large Cap Value mutual fund. DIV earns a Neutral rating and IDVGX earns a Very Dangerous rating. Eaton Corporation (NYSE: ETN ) is one of our favorite stocks held by KDHIX and earns an Attractive rating. Eaton was featured as a Long Idea in December 2015. Over the past decade, Eaton has grown after-tax profits ( NOPAT ) by 14% compounded annually. The company currently earns a 9% return on invested capital ( ROIC ), up from just 4% in 2009. Despite long-term improvement in fundamentals, ETN remains undervalued. At its current price of $57/share, ETN has a price to economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Eaton’s NOPAT will permanently decline by 10% from current levels. If Eaton can grow NOPAT by just 7% compounded annually over the next decade , the stock is worth $70/share today – a 23% upside. Advance Auto Parts (NYSE: AAP ) is one of our least favorite stocks held by Large Cap Value ETFs and mutual funds. AAP earns a Very Dangerous rating and landed on February’s Most Dangerous Stocks list. From 2010 to the last twelve months, Advance Auto Parts’ NOPAT has declined by 2% compounded annually. Over this time, Advance Auto Parts’ ROIC has declined from 12% to 5%. With the continued deterioration of the business, AAP is overvalued. To justify its current price of $153/share, Advance Auto Parts must grow NOPAT by 10% compounded annually for the next 15 years . This expectation is at odds with Advance Auto Parts declining profitability over the past few years. Figures 3 and 4 show the rating landscape of all Large 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 Kyle Guske II receive no compensation to write about any specific stock, 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. 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.