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Best And Worst Q4’15: Small Cap Growth ETFs, Mutual Funds And Key Holdings

Summary The Small Cap Growth style ranks eleventh in Q4’15. Based on an aggregation of ratings of 11 ETFs and 427 mutual funds. SLYG is our top-rated Small Cap Growth style ETF and VSCRX is our top-rated Small Cap Growth style mutual fund. The Small Cap Growth style ranks eleventh out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Small Cap Growth style ranked eleventh as well. It gets our Dangerous rating, which is based on an aggregation of ratings of 11 ETFs and 427 mutual funds in the Small Cap Growth style. See a recap of our Q3’15 Style Ratings here. Figure 1 ranks from best to worst the nine 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 1186). 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 PureGrowth 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 Porftolio Smith Group Small Cap Focused Growth (SGSNX, SGSVX) and the American Beacon Bahl & Gaynor Small Cap Growth (GBSIX, GBSYX) are excluded from Figure 2 because their 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 our Neutral rating and VSCRX earns our Very Attractive rating. The First Trust Small Cap Growth AlphaDEX ETF (NYSEARCA: FYC ) is the worst-rated Small Cap Growth ETF and the Dreyfus Managers Small Cap Growth Fund (MUTF: DSGAX ) is the worst-rated Small Cap Growth mutual fund. FYC earns a Dangerous rating while DSGAX earns a Very Dangerous rating. Hawaiian Holdings (NASDAQ: HA ) is one of our favorite stocks held by Small Cap Growth ETFs and mutual funds and earns our Attractive rating. Since 2010, Hawaiian Holdings has grown after-tax profits ( NOPAT ) by 11% compounded annually. The company’s current 12% return on invested capital ( ROIC ) is a great improvement over the 7% earned in 2013 and points to the business becoming more profitable. Despite the improving fundamentals, HA remains undervalued. At its current price of $36/share, Hawaiian Holdings has a price to economic book value ( PEBV ) ratio of 1.0. This ratio means that the market expects Hawaiian’s NOPAT to never meaningfully grow from current levels. If Hawaiian Holdings can grow NOPAT by just 9% compounded annually over the next decade , the stock is worth $46/share today – a 27% upside. Scholastic Corporation (NASDAQ: SCHL ) is one of our least favorite stocks held by Small Cap Growth funds and earns our Very Dangerous rating. Since 2011, Scholastic’s NOPAT has declined by 8% compounded annually. The company’s ROIC has followed suit from 5% in 2011 to its current bottom quintile 1% in 2015. Despite the deteriorating operations of the business, shares are still priced for significant growth. To justify its current price of $42/share, Scholastic must grow NOPAT by 6% compounded annually for the next 15 years . This expectation seems unlikely to be met considering Scholastic’s inability to grow NOPAT over the past five years. 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 ETFs (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 Thaxston McKee receive no compensation to write about any specific stock, style, or theme.

Ivy Portfolio December Update

The Ivy Portfolio spreadsheet track the 10-month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets . Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks both the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10-month simple moving average, the position is listed as “Cash.” When the security is trading above its 10-month simple moving average the positions is listed as “Invested.” The spreadsheet’s signals update once daily (typically in the late evening) using dividend/split adjusted closing price from Yahoo Finance. The 10-month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10-month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10-month SMA. This could also potentially impact whether an ETF is above or below its 10-month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on November 30th’s adjusted closing prices are below. This month Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and Vanguard REIT Index ETF (NYSEARCA: VNQ ) are above their moving average and the balance of the ETFs, the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ), the Vanguard Small Cap ETF (NYSEARCA: VB ), the SPDR DJ International Real Estate ETF (NYSEARCA: RWX ), the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) , the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ) , the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ), the Vanguard Total Bond Market ETF (NYSEARCA: BND ), and the iShares TIPS Bond ETF (NYSEARCA: TIP ) , are below their 10-month moving average. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz . The return data is useful for those interested in overlaying a momentum strategy with the 10-month SMA strategy: (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10 month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker. Below are the 10-month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosures: None.

This New Alternative Energy ETF Continues To Bleed

Renewable energy YieldCos continue to feel the pain. This investment vehicle was once conceptualized and launched for the sake of helping energy companies raise cheaper project financing while benefiting investors through higher distributions and yield. But now they continue to bear the brunt due to several reasons. First, the recent crash in crude oil prices to the $40 level is taking its toll on YieldCo stocks. Low oil prices reduce the demand for renewable energy and therefore YieldCos. Second, the slowdown in China, the world’s biggest producer of solar panels, doesn’t bode well for them. China is projected to grow by 6.8% in 2015, which would be the lowest in 25 years. Third, the brightened prospect of an interest rate hike by the Fed in December makes the high-yielding YieldCo stocks less appealing to investors. Further, a rising interest rate scenario is never desirable for them, as it raises their cost of project financing on which they are highly dependent. Finally, YieldCos need to issue shares (generally at higher prices than their IPOs) from time to time to raise capital for new investments as most of their cash flow gets wiped out by paying dividends. However, they are facing difficulties on this front due to depressed renewable energy stocks and an oversupply of YieldCos in the market, making investors reluctant to pay higher prices. Let us consider the performance of three new YieldCos, TerraForm Power, Inc. (NASDAQ: TERP ), TerraForm Global, Inc. (NASDAQ: GLBL ) and 8point3 Energy Partners LP (NASDAQ: CAFD ). Shares of TerraForm Power lost a significant 73.8% since its IPO was launched by SunEdison, Inc. (NYSE: SUNE ) last year. On the other hand, shares of TerraForm Global, also launched by SunEdison, cooled off 59.3% since its IPO this August. Meanwhile, shares of 8point3 Energy Partners shed 42.1% since its IPO launched by FirstSolar Inc. (NASDAQ: FSLR ) and SunPower Corp. (NASDAQ: SPWR ) in June this year. Notably, SunEdison YieldCos – TerraForm Power and TerraForm Global – posted dismal quarterly results at the beginning of this month. TerraForm Power reported a loss of 3 cents per share for the 2015 third quarter in sharp contrast to the Zacks Consensus Estimate of earnings of 28 cents. On the other hand, TerraForm Global reported a considerably wider-than-expected loss of 33 cents per share for the quarter compared with the Zacks Consensus Estimate of a loss of 14 cents. The oldest surviving YieldCo, Brookfield Renewable Energy Partners LP (NYSE: BEP ), formed by Brookfield Asset Management (NYSE: BAM ), also posted a wider-than-expected loss of 7 cents per share compared with the Zacks Consensus Estimate of a loss of 5 cents at the beginning of this month. The YieldCo had generated earnings in the three preceding quarters. These adverse developments have led Global X YieldCo ETF (NASDAQ: YLCO ) to tumble 32.2% since its launch in May this year by Global X (as of November 23, 2015). YLCO intends to diversify the risk of owning YieldCo stocks by tracking the Indxx Global YieldCo index. The ETF holds 20 securities with Brookfield Renewable Energy Partners, NextEra Energy Partners, LP (NYSE: NEP ) – a NextEra Energy, Inc. (NYSE: NEE ) YieldCo – and NRG Yield, Inc. (NYSE: NYLD ) – a NRG Energy, Inc. (NYSE: NRG ) YieldCo – taking up the first, second and third spots with 12.13%, 9.02% and 8.36% shares, respectively. The fund is highly concentrated in its top 10 holdings, which account for 68.74% of total assets. It has a global footprint with the U.S. occupying the top spot at 37%, followed by Canada (31%), U.K. (20%) and Spain (12%). YLCO has gathered a meager $3.5 million in assets and trades in a paltry volume of 4,000 shares. It charges 65 bps in annual fees from investors and has a dividend yield of 2.8% (as of November 23, 2015). Original Post