Tag Archives: mutual funds

Best And Worst Q1’16: All Cap Blend ETFs, Mutual Funds And Key Holdings

The All Cap Blend style ranks third 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 Blend style ranked third as well. It gets our Neutral rating, which is based on aggregation of ratings of 708 ETFs and 706 mutual funds in the All Cap Blend 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 All Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 4 to 3774). 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 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. Sources: New Constructs, LLC and company filings The Jensen Quality Value Fund (MUTF: JNVIX ) (MUTF: JNVSX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Market Vectors Morningstar Wide Moat ETF (NYSEARCA: MOAT ) is the top-rated All Cap Blend ETF and the Smead Value Fund (MUTF: SVFYX ) is the top-rated All Cap Blend mutual fund. Both earn a Very Attractive rating. The ProShares Ultra Telecommunications (NYSEARCA: LTL ) is the worst-rated All Cap Blend ETF and the Rydex Russell 2000 2x Strategy A (MUTF: RYRUX ) is the worst-rated All Cap Blend mutual fund. Both earn a Very Dangerous rating. Aflac Inc. (NYSE: AFL ) is one of our favorite stocks held by SVFYX and earns a Very Attractive rating. Over the past decade, Aflac has grown its after-tax profit ( NOPAT ) by 9% compounded annually while improving its NOPAT margin from 9% in 2004 to 12% in the last twelve months. Aflac currently earns a top-quintile return on invested capital ( ROIC ) of 15%. Despite the consistent profit growth, AFL remains flat over the past year, which has made shares undervalued. At its current price of $59/share, Aflac has a price to economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects Aflac’s NOPAT to permanently decline by 20%. This expectation seems overly pessimistic given Aflac’s track record of profit growth. If Aflac can grow NOPAT by just 4% compounded annually for the next decade , the stock is worth $102/share today – a 72% upside. CubeSmart (NYSE: CUBE ) is one of our least favorite stocks held by UWM and earns a Dangerous rating. Despite GAAP net income that occasionally looks good, CubeSmart has never generated positive economic earnings since going public in 2004. The company’s ROIC has remained well below that of peers and is currently a bottom quintile 4%. Worst of all, the company’s negative free cash flow and -5% free cash flow yield could put pressure on its ability to continue paying its near 3% dividend yield. Despite the problems, CUBE remains overvalued. To justify its current price of $30/share, CubeSmart must grow NOPAT by 13% compounded annually for the next 22 years. 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 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.

Q1 2016 Style Ratings For ETFs And Mutual Funds

At the beginning of the first quarter of 2016, only the Large Cap Blend style earns an Attractive-or-better rating. Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style. Investors looking for style funds that hold quality stocks should look no further than the Large Cap Blend and Large Cap Value styles. These styles house the most Attractive-or-better rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management , or good stock picking, with low total annual costs . Attractive-or-better ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) cheap funds can dupe investors and (2) investors should invest only in funds with good stocks and low fees. See Figures 4 through 13 for a detailed breakdown of ratings distributions by style. Figure 1: Ratings For All Investment Styles Click to enlarge Source: New Constructs, LLC and company filings To earn an Attractive-or-better Predictive Rating, an ETF or mutual fund must have high-quality holdings and low costs. Only the top 30% of all ETFs and mutual funds earn our Attractive or better rating. The Vulcan Value Partners Fund (MUTF: VVPLX ) is the top rated Large Cap Blend fund. It gets our Very Attractive rating by allocating over 61% of its value to Attractive-or-better-rated stocks. Oracle Corporation (NYSE: ORCL ) has long been one of our favorite stocks held by VVPLX and earns a Very Attractive rating. Over the past decade, Oracle has grown after-tax profit ( NOPAT ) by 15% compounded annually. The company’s earns a top quintile 23% return on invested capital ( ROIC ). Oracle has grown into a cash machine, generating over $40.7 billion in free cash flow over the past five years. Unwarranted concerns about the company’s ability to adapt to new cloud technologies have created a great buying opportunity. At its current price of $37/share, ORCL earns a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Oracle’s NOPAT to permanently decline by 10% from current levels. If Oracle can instead grow NOPAT by just 5% compounded annually for the next decade , the stock is worth $57/share today – a 54% upside. Neuberger Berman Small Cap Growth (MUTF: NSNAX ) is the worst rated Small Cap Growth fund. It gets our Very Dangerous rating by allocating over 48% of its value to Dangerous-or-worse-rated stocks. Making matters worse, it charges investors total annual costs of 5.37%. Brunswick Corporation (NYSE: BC ) is one of our least favorite stocks held by NSNAX and earns a Dangerous rating. Over the past decade, Brunswick’s NOPAT has fallen by 1% compounded annually. Over the same time, the company’s ROIC has declined from 9% in 2004 to 8% over the trailing-twelve months. Despite the continued deterioration of the business, the stock remains overvalued. To justify its current price of $44/share, Brunswick must grow NOPAT by 10% compounded annually for the next 16 years . This expectation seems rather optimistic given Brunswick’s inability to grow profits over the prior decade. Figure 2 shows the distribution of our Predictive Ratings for all investment style ETFs and mutual funds. Figure 2: Distribution of ETFs & Mutual Funds (Assets and Count) by Predictive Rating Click to enlarge Source: New Constructs, LLC and company filings Figure 3 offers additional details on the quality of the investment style funds. Note that the average total annual cost of Very Dangerous funds is almost five times that of Very Attractive funds. Figure 3: Predictive Rating Distribution Stats Click to enlarge * Avg TAC = Weighted Average Total Annual Costs Source: New Constructs, LLC and company filings This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs. Investors deserve to have the best of both and we are here to give it to them. Ratings by Investment Style Figure 4 presents a mapping of Very Attractive funds by investment style. The chart shows the number of Very Attractive funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Attractive. Figure 4: Very Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 5 presents the data charted in Figure 4 Figure 5: Very Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 6 presents a mapping of Attractive funds by investment style. The chart shows the number of Attractive funds in each style and the percentage of assets allocated to Attractive-rated funds in each style. Figure 6: Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 7 presents the data charted in Figure 6. Figure 7: Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 8 presents a mapping of Neutral funds by investment style. The chart shows the number of Neutral funds in each investment style and the percentage of assets allocated to Neutral-rated funds in each style. Figure 8: Neutral ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 9 presents the data charted in Figure 8. Figure 9: Neutral ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 10 presents a mapping of Dangerous funds by fund style. The chart shows the number of Dangerous funds in each investment style and the percentage of assets allocated to Dangerous-rated funds in each style. The landscape of style ETFs and mutual funds is littered with Dangerous funds. Investors in Small Cap Value have put over 38% of their assets in Dangerous-rated funds. Figure 10: Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 11 presents the data charted in Figure 10. Figure 11: Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 12 presents a mapping of Very Dangerous funds by fund style. The chart shows the number of Very Dangerous funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Dangerous. Figure 12: Very Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 13 presents the data charted in Figure 12. Figure 13: Very Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector 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.

Do TIPS ETFs Deserve A Look As Inflation Rises?

Inflation has been floppy for most developed economies, including the U.S., for quite some time now. Reaching 2% inflation – as targeted by most of the central banks – has become a tall order, with both the eurozone and Japan struggling to ward off deflation. The nagging oil price crisis over the last one and a half years seems to be the main culprit. While the ECB and Bank of Japan were compelled to pursue QE measures to fight deflationary threats. Back home, subdued inflation checked the Fed from being aggressive on the policy tightening issue. Even after the lift-off in December, market watchers were under the impression that the Fed will likely apply a single hike, at the most, this year, thanks to the global market upheaval and subdued inflation. In such a scenario, the U.S. inflation rate rose 1.4% for the fourth successive month in January – the best annual gain last seen in October 2014, and surpassing market expectations of a 1.3% gain. Core consumer price index (CPI) jumped to 2.2% in January. The reading was the highest since June 2012, and it came above the goal set by the Fed at 2%. Higher rents, healthcare and transportation costs boosted inflation in January. Excluding food and energy, consumer prices rose 0.3% in January – a four and-a half year high, and higher than the last month’s increase of 0.2%. Time for TIPS ETFs? TIPS offers robust real returns during inflationary periods, unlike its unprotected peers in the fixed-income world. These securities pay an interest on an inflated principal amount (principal rises with inflation), and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both principal amount and interest payments will keep on rising with increasing consumer prices. This mechanism makes TIPS ETFs investors’ darlings in times of rising inflation. Presently, the iShares TIPS Bond ETF (NYSEARCA: TIP ) is one of the biggest beneficiaries of this trend, having hauled in $256.5 million last week. The fund is up 1.5% this year (as of February 19, 2016). Is the Bet Worth It? Though the decline in oil prices has slowed, things are yet to stabilize in the oil patch. So, it is too early to take a call on the inflation picture. Of course, the recent trend is pointing toward solid inflation, and the upbeat January data has made the case stronger for faster Fed tightening. However, a lot of the future trend of inflation depends on the movement of energy prices. Still, investors with a long-term view can count on the potential uptick in inflation, as the U.S. economic backdrop remains more or less ,steady and issues in the energy space should be sorted sooner or later. With the economy and the job market mending, inflation will definitely increase in coming months. Below, we highlight a few outperforming TIPS ETFs which could be compelling investments if U.S. inflation continues to rise (see all TIPS ETFs here ). PIMCO 15+ Year U.S. TIPS Index ETF (NYSEARCA: LTPZ ) This fund targets long-term securities of the TIPS market by tracking the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index. In total, the product holds 7 bonds having effective maturity of 26.41 years and carrying a high interest rate risk, given the effective duration of 21.83 years. In terms of credit quality, the fund boasts top-rated bonds from Moody’s and the S&P, suggesting lower default risk. The ETF is less popular and less liquid, with AUM of $98.1 million. LTPZ has generated excellent returns of about 3% so far this year (as of February 19, 2016). SPDR Barclays Capital TIPS ETF (NYSEARCA: IPE ) This fund targets long-term securities of the TIPS market by tracking the Barclays Capital U.S. Government Inflation-Linked Bond Index. In total, the product holds 37 bonds having effective maturity of 9.08 years and carrying a moderate interest rate risk, given the effective duration of 4.90 years. In terms of credit quality, the fund boasts top-rated bonds. The ETF is moderately popular and less liquid, with AUM of $637.5 million. IPE has gained about 1.6% so far this year (as of February 19, 2016). PIMCO Broad U.S. TIPS ETF (NYSEARCA: TIPZ ) This $66.4 million fund looks to track the BofA Merrill Lynch US inflation-linked Treasury index. The fund holds 19 securities and has an effective maturity of 9.09 years, while its effective duration is 8.26 years. It charges 55 bps in fees, and is up 1.8% so far this year (as of February 19, 2016). Original Post