Best And Worst Q4’15: Mid Cap Growth ETFs, Mutual Funds And Key Holdings
Summary The Mid Cap Growth style ranks ninth in Q4’15. Based on an aggregation of ratings of 10 ETFs and 343 mutual funds. RFG is our top-rated Mid Cap Growth style ETF and CCPIX is our top-rated Mid Cap Growth style mutual fund. The Mid Cap Growth style ranks ninth out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Mid Cap Growth style ranked eighth. It gets our Dangerous rating, which is based on an aggregation of ratings of 10 ETFs and 343 mutual funds in the Mid Cap Growth style. See a recap of our Q3’15 Style Ratings here. Figure 1 ranks from best to worst all ten Mid Cap Growth ETFs and Figure 2 shows the five best and worst-rated Mid Cap Growth mutual funds. Not all Mid Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely from 23 to 573. This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid Cap Growth 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 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 Virtus Equity Trust Mid-Cap Core (VIMCX, VMCCX) and the Professionally Managed Portfolios Villere Equity Fund (MUTF: VLEQX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Guggenheim S&P MidCap 400 Pure Growth ETF (NYSEARCA: RFG ) is the top-rated Mid Cap Growth ETF and the Calvert World Values Capital Accumulation Fund (MUTF: CCPIX ) is the top-rated Mid Cap Growth mutual fund. RFG earns an Attractive rating and CCPIX earns a Very Attractive rating. The Ark Industrial Innovation ETF (NYSEARCA: ARKQ ) is the worst-rated Mid Cap Growth ETF and the Tocqueville Opportunity Fund (MUTF: TOPPX ) is the worst-rated Mid Cap Growth mutual fund. ARKQ earns a Neutral rating and TOPPX earns a Very Dangerous rating. Lear Corporation (NYSE: LEA ) is one of our favorite stocks held by Mid Cap Growth ETFs and mutual funds and earns an Attractive rating. Since going public in 2010, Lear has grown after-tax profits ( NOPAT ) by 7% compounded annually. The company has maintained NOPAT margins ~5% and currently earns a top quintile return on invested capital ( ROIC ) of 17%. Such strong fundamentals have propelled Lear shares over 20% higher this year, but shares still remain undervalued. At its current price of $125/share, LEA has a price to economic book value ( PEBV ) ratio of 1.1. This ratio implies the market expects Lear to only grow NOPAT by 10% for the remainder of its corporate life. If Lear can grow NOPAT by just 8% compounded annually for the next decade , the stock is worth $174/share today – a 39% upside. CoStar Group Inc. (NASDAQ: CSGP ) is one of our least favorite stocks held by Mid Cap Growth ETFs and mutual funds and earns a Dangerous rating. Despite reporting positive and increasing net income over the past five years, CoStar’s economic earnings have fallen from -$3 million in 2010 to -$131 million on a TTM basis. The company’s ROIC has fallen from 9% to a bottom quintile 1% over this same timeframe. CSGP is up ~3% year-to-date and is currently overvalued given its deteriorating business operations. To justify its current price of $204/share, CoStar must grow profits by 20% compounded annually for the next 19 years. With such lofty expectations baked into the stock price investors would be wise to avoid CSGP. Figures 3 and 4 show the rating landscape of all Mid 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 Blaine Skaggs receive no compensation to write about any specific stock, style, or theme.