Small Cap Blend Style 1Q17: Best and Worst

The Small Cap Blend style ranks ninth out of the twelve fund styles as detailed in our 1Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Blend style ranked tenth. It gets our Dangerous rating, which is based on an aggregation of ratings of 24 ETFs and 736 mutual funds in the Small Cap Blend style as of January 31, 2017. See a recap of our 4Q16 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 18 to 2,374). 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.

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 5

smallcapblend1q17_figure1* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Validea Market Legends (VALX), VictoryShares U.S. Discovery Enhanced Volatility (CSF), and iShares Edge MSCI Multifactor USA Small-Cap (SMLF) 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

smallcapblend1q17_figure2* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Lyons Small Cap Fund (LFSAX), Rational Defensive Growth Fund (HSUCX), American Beacon Zebra Small Cap Equity Fund (AZSPX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

WisdomTree MidCap Earnings Fund (EZM) is the top-rated Small Cap Blend ETF and Fidelity Small Cap Value Fund (FCPVX) is the top-rated Small Cap Blend mutual fund. Both earn an Attractive rating.

First Trust Small Cap Core AlphaDEX Fund (FYX) is the worst rated Small Cap Blend ETF and First Investors Special Situations Fund (FISBX) is the worst rated Small Cap Blend mutual fund. FYX earns a Dangerous rating and FISBX earns a Very Dangerous 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

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

smallcapblend1q17_figure3

Sources: New Constructs, LLC and company filings

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

smallcapblend1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on February 1, 2017.

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

Click here to download a PDF of this report

Leave A Response

* Denotes Required Field