Best And Worst Q4’15: Small Cap Value ETFs, Mutual Funds And Key Holdings
Summary The Small Cap Value style ranks tenth in Q4’15. . Based on an aggregation of ratings of 16 ETFs and 255 mutual funds. . VBR is our top-rated Small Cap Value style ETF and RVFIX is our top-rated Small Cap Value Style mutual fund.. The Small Cap Value style ranks tenth 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 Value style ranked tenth as well. It gets our Dangerous rating, which is based on an aggregation of ratings of 16 ETFs and 255 mutual funds in the Small Cap Value style. See a recap of our Q3’15 Style Ratings here. Figure 1 ranks from best to worst the ten Small-Cap Value ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Small-Cap Value mutual funds. Not all Small Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 12 to 1502). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Small 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 The Direxion Value Line Small- and Mid-Cap High Dividend ETF (NYSEARCA: VLSM ) and the First Trust Mid Cap Value AlphaDEX ETF (NYSEARCA: FNK ) and 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 Vanguard Small-Cap Value ETF (NYSEARCA: VBR ) is the top-rated Small Cap Value ETF and the Royce Small-Cap Value Fund (MUTF: RVFIX ) is the top-rated Small Cap Value mutual fund. DBR earns a Neutral rating and RVFIX earns an Attractive rating. The PowerShares Fundamental Pure Small Value Portfolio ETF (NYSEARCA: PXSV ) is the worst-rated Small Cap Value ETF and the Aston/River Road Independent Value Fund (MUTF: ARIVX ) is the worst-rated Small Cap Value mutual fund. PXSV earns a Dangerous rating and ARIVX earns a Very Dangerous rating. The Buckle, Inc. (NYSE: BKE ) is one of our favorite stocks held by Small Cap Value ETFs and mutual funds and earns our Very Attractive rating. For the past decade, the company has grown after-tax profit ( NOPAT ) by 13% compounded annually. Not only has the company posted strong profit growth, but Buckle has improved its return on invested capital ( ROIC ) from 18% to a top quintile 30% during the same time frame. Concerns over the retail industry have led shares of this fundamentally sound company to be significantly undervalued. At its current price of $32/share, Buckle has a price to economic book value ( PEBV ) ratio of 0.6. This ratio means that the market expects Buckle’s NOPAT to permanently decline by 40%. If Buckle can grow NOPAT by 5% compounded annually for the next five years , the company is worth $69/share today – a 115% upside. Dean Foods (NYSE: DF ) is one of our least favorite stocks held by Small Cap Value ETFs and mutual funds and earns our Dangerous rating. Dean Foods was also placed in the Danger Zone back in December 2012. Since 2010, Dean Foods’ NOPAT has declined by an alarming 48% compounded annually. The company’s ROIC has fallen from 4% in 2010 to a bottom quintile 1% on a trailing-twelve-month basis. Despite the deterioration of business operations, Dean Foods remains priced for significant profit growth. To justify its current price of $19/share, Dean Foods must grow NOPAT by 19% compounded annually for the next 17 years . This expectation seems optimistic given that Dean Foods’ profits have steadily declined since 2010. Figures 3 and 4 show the rating landscape of all Small Cap Value 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.