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Summary Large Cap Value style ranks first in Q3’15. Based on an aggregation of ratings of 43 ETFs and 836 mutual funds. SCHD is our top-rated Large Cap Value ETF and MDIVX is our top-rated Large Cap Value mutual fund. The Large Cap Value style ranks first out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Attractive rating, which is based on an aggregation of ratings of 43 ETFs and 836 mutual funds in the Large Cap Value style. See a recap of our Q2’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Large Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 17 to 1007). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large 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 First Trust NASDAQ Rising Dividend Achievers ETF (NASDAQ: RDVY ), the iShares Enhanced U.S. Large-Cap ETF (NYSEARCA: IELG ), and the SPDR Russell 1000 Low Volatility ETF (NYSEARCA: LGLV ) 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 Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ) is the top-rated Large Cap Value ETF and the BMO Dividend Income Fund (MUTF: MDIVX ) is the top-rated Large Cap Value mutual fund. Both earn our Very Attractive rating. The Guggenheim S&P 500 Pure Value ETF (NYSEARCA: RPV ) is the worst-rated Large Cap Value ETF and the Northern Lights Good Harbor Tactical Equity Income Fund (MUTF: GHTAX ) is the worst-rated Large Cap Value mutual fund. RPV earns a Neutral rating and GHTAX earns a Very Dangerous rating. Travelers Companies (NYSE: TRV ) is one of our favorite Large Cap Value stocks and earns our Very Attractive rating. Since 2012, Travelers has grown after-tax profits ( NOPAT ) by 22% compounded annually. The company has improved its return on invested capital ( ROIC ) to 12% from 4% in 2011. In addition, Travelers has generated over $3.4 billion in free cash flow on a trailing twelve-month basis. Despite the steadily improving business, the stock price remains undervalued. At its current price of $105/share, Travelers has a price to economic book value ( PEBV ) ratio of 0.7. This ratio implies that the market expects Travelers’ NOPAT to permanently decline by 30% from current levels. This expectation is overly pessimistic, and if Travelers can grow NOPAT by 3% compounded annually over the next five years , the stock is worth $193/share today – an 83% upside. Perry Ellis (NASDAQ: PERY ) is one of our least favorite stocks held by TILDX and earns our Dangerous rating. From 2011-2014, Perry Ellis’ NOPAT has declined by 17% compounded annually and its ROIC has fallen from 8% to a bottom quintile 3%. Most troubling is that over this same timeframe, Perry Ellis’ NOPAT margin has declined to 2% from 5%. Despite the company’s declining fundamentals, PERY is priced for significant growth. Even if Perry Ellis were able to increase its NOPAT margin to 3%, the company would still have to grow NOPAT by 12% compounded annually for the next 12 years to justify the current price of $25/share. This expectation is rather optimistic considering that over the last 12 years Perry Ellis only grew NOPAT by 4% compounded annually, and the business has seen profits decline as of late. Investors interested in a quality retailer would be better off avoiding Perry Ellis and looking at recent Stock Pick of the Week Ralph Lauren. Figures 3 and 4 show the rating landscape of all Large Cap Value ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds (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 Kyle Guske II receive no compensation to write about any specific stock, style, style or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) 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. Scalper1 News
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