Best And Worst Q1’16: All Cap Value ETFs, Mutual Funds And Key Holdings
The All Cap Value style ranks fourth out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the All Cap Value style ranked fourth as well. It gets our Neutral rating, which is based on aggregation of ratings of 11 ETFs and 272 mutual funds in the All Cap Value style. See a recap of our Q4’15 Style Ratings here. Figure 1 ranks from best to worst the seven all-cap value ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated all-cap value mutual funds. Not all All Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 2025). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All 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 Five 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 Northern Lights Fund Trust II Al Frank Fund ( VALAX , VALUX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The PowerShares FTSE RAFI US 1000 Portfolio ETF (NYSEARCA: PRF ) is the top-rated All Cap Value ETF and the Transamerica Partners Institutional Large Value Fund (MUTF: DIVIX ) is the top-rated All Cap Value mutual fund. PRF earns an Attractive rating and DIVIX earns a Very Attractive rating. The First Trust Value Line Dividend ETF (NYSEARCA: FVD ) is the worst-rated All Cap Value ETF and the Copley Fund (MUTF: COPLX ) is the worst-rated All Cap Value mutual fund. FVD earns a Neutral rating and COPLX earns a Very Dangerous rating. Wells Fargo & Company (NYSE: WFC ) is one of our favorite stocks held by PRF and earns an Attractive rating. Wells Fargo was also featured as a long idea in November2015. Wells Fargo’s ability to grow after-tax profits ( NOPAT ) has been extremely impressive. Over the past decade, the company has grown NOPAT by 12% compounded annually. Over this same time, Wells Fargo has consistently earned a double-digit return on invested capital ( ROIC ) and over the trailing-twelve-months, earns an 11% ROIC. Despite the impressive business strength, the company remains undervalued. At its current price of $48/share, Wells Fargo has a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects the company’s NOPAT to permanently decline by 10% from current levels. If Wells Fargo can grow NOPAT by just 5% compounded annually for the next decade , the stock is worth $67/share today – a 40% upside. Orbcomm Inc. (NASDAQ: ORBC ) is one of our least favorite stocks held by FRAVX and earns a Dangerous rating. Over the past five years, Orbcomm’s NOPAT has declined by 20% compounded annually. In fact, the business has never generated positive economic earnings in any year since going public in 2006. Orbcomm currently earns a bottom-quintile ROIC of 1%. In spite of the poor fundamentals, ORBC is up nearly 20% in the last year and is now significantly overvalued. To justify its current price of $7/share, Orbcomm must grow NOPAT by 34% compounded annually for the next 14 years. Figures 3 and 4 show the rating landscape of all All 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.