Financials Sector 1Q17: Best and Worst

The Financials sector ranks fourth out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Financials sector ranked fifth. It gets our Neutral rating, which is based on an aggregation of ratings of 38 ETFs and 224 mutual funds in the Financials sector as of January 17, 2017. See a recap of our 4Q16 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 49 to 561). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Financials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Here is our ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. 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 5financials1q17_figure1* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

SPDR S&P Capital Markets ETF (KCE) and PowerShares KBW Property & Casualty Insurance Portfolio (KBWP) 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 5financials1q17_figure2* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Eaton Vance Real Estate Fund (EIREX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

iShares U.S. Financials ETF (IYF) is the top-rated Financials ETF and Vanguard Financials Index Fund (VFAIX) is the top-rated Financials mutual fund. Both earn a Very Attractive rating.

PowerShares KBW REIT Portfolio (KBWY) is the worst rated Financials ETF and Salient Real Estate Fund (FPREX) is the worst rated Financials mutual fund. KBWY earns our Dangerous rating and FPREX earns our Very Dangerous rating.

592 stocks of the 3000+ we cover are classified as Financials stocks.

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 FUND’s HOLDINGs = PERFORMANCE OF FUND

Figures 3 and 4 show the rating landscape of all Financials ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

financials1q17_figure3

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

finanicals1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on 1/18/17.

Disclosure: David Trainer, Kyle Guske and Kyle Martone receive no compensation to write about any specific stock, sector or theme.

Click here to download a PDF of this report.

Leave A Response

* Denotes Required Field