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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.