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The Small Cap Blend style ranks tenth out of the twelve fund styles as detailed in our Q2’19 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Blend style ranked ninth. It gets our Unattractive rating, which is based on an aggregation of ratings of 48 ETFs and 847 mutual funds in the Small Cap Blend style. See a recap of our Q1’19 Style Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Small Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 3246). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Small Cap Blend style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[2] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
Figure 1: ETFs with the Best & Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNA less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Seven ETFs (VALX, CALF, SQLV, XSHQ, WBIA, FLQS, CSA) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5
* Best mutual funds exclude funds with TNA less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
James Small Cap Fund (JASCX) is excluded from Figure 2 because its TNA are below $100 million and do not meet our liquidity minimums.
WisdomTree U.S. Mid Cap Fund (EZM) is the top-rated Small Cap Blend ETF and Royce Small Cap Value Fund (RVVHX) is the top-rated Small Cap Blend mutual fund. EZM earns an Attractive rating and RVVHX earns a Very Attractive rating.
Invesco S&P Small Cap 600 Equal Weight ETF (EWSC) is the worst rated Small Cap Blend ETF and Small Cap ProFund (SLPSX) is the worst rated Small Cap Blend mutual fund. EWSC earns an Unattractive rating and SLPSX earns a Very Unattractive rating.
The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.
PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.
Figures 3 and 4 show the rating landscape of all Small Cap Blend ETFs and mutual funds.
Figure 3: Separating the Best ETFs from the Worst Funds
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds from the Worst Funds
Sources: New Constructs, LLC and company filings
This article originally published on April 25, 2019.
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.
[1]Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.
[2]Ernst & Young’s recent white paper “Getting ROIC Right” proves the superiority of our holdings research and analytics.
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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.
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