Small Cap Value Style 2Q17: Best and Worst

The Small Cap Value style ranks last out of the twelve fund styles as detailed in our 2Q17 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Value style ranked last as well. It gets our Dangerous rating, which is based on an aggregation of ratings of 19 ETFs and 252 mutual funds in the Small Cap Value style as of April 25, 2017. See a recap of our 1Q17 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 Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 1501). 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.

Our Robo-Analyst technology empowers our unique 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

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

Sources: New Constructs, LLC and company filings

First Trust Mid Cap Value AlphaDEX (FNK) and First Trust Dow Jones Select Micro Cap Index (FDM) are excluded from the best ETFs section in 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 TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

First Trust AQA Equity Fund (AQACX) and Walthausen Select Value Fund (WSVRX) are excluded from the best mutual funds section in Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

PowerShares S&P SmallCap Low Volatility Portfolio (XSLV) is the top-rated Small Cap Value ETF and Royce Special Equity Fund (RSQCX) is the top-rated Small Cap Value mutual fund. Both earn an Attractive rating.

PowerShares Russell 2000 Pure Value Portfolio (PXSV) is the worst rated Small Cap Value ETF and Snow Capital Small Cap Value Fund (SNWAX) is the worst rated Small Cap Value mutual fund. PXSV earns a Dangerous rating and SNWAX 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

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 Value 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 28, 2017.

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

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

Click here to download a PDF of this report.

Leave A Response

* Denotes Required Field