Best And Worst Q3’15: Mid Cap Growth ETFs, Mutual Funds And Key Holdings

By | August 26, 2015

Scalper1 News

Summary The Mid Cap Growth style ranks eighth in Q3’15. Based on an aggregation of ratings of 11 ETFs and 382 mutual funds. MDYG is our top-rated Mid Cap Growth ETF and IMIDX is our top-rated Mid Cap Growth mutual fund. The Mid Cap Growth style ranks eighth out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 11 ETFs and 382 mutual funds in the Mid Cap Growth 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 Mid Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 626). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid Cap Growth 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 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 State Street SPDR S&P 400 Mid Cap Growth ETF (NYSEARCA: MDYG ) is the top-rated Mid Cap Growth ETF and the Professionally Managed Portfolios Congress Mid Cap Growth Fund (MUTF: IMIDX ) is the top-rated Mid Cap Growth mutual fund. Both earn an Attractive rating. The QuantShares U.S. Market Neutral Momentum Fund ETF (NYSEARCA: MOM ) is the worst-rated Mid Cap Growth ETF and the Starboard Investment Goodwood SMID Cap Discovery Fund (MUTF: GAMAX ) is the worst-rated Mid Cap Growth mutual fund. MOM earns a Neutral Rating and GAMAX earns a Very Dangerous rating. The Buckle, Inc. (NYSE: BKE ) is one of our favorite stocks held by Mid Cap Growth funds and earns our Very Attractive rating. Over the past decade, the company has grown after-tax profit (NOPAT) by 14% compounded annually. The company currently earns a top-quintile return on invested capital ( ROIC ) of 32%, which is more than double the 15% earned in 2005. Furthermore, Buckle has maintained a steady NOPAT margin of 15% for the past six years. Despite the fundamental strength of the business, its stock remains undervalued. At the current price of $40/share, Buckle has a price to economic book value ( PEBV ) ratio of 0.0. This ratio implies that the market expects Buckle’s profits to permanently decline by 20%. While the retail sector has its ups and downs, this low expectation ignores the profitability Buckle has maintained over its lifetime. If the company can grow NOPAT by just 6% compounded annually for the next ten years , the stock is worth $74/share – an 85% upside. ServiceNow (NYSE: NOW ) is one of our least favorite stocks held by Mid Cap Growth funds and earns our Dangerous rating. Much like other cloud companies we have covered, ServiceNow has never turned a profit since going public. NOPAT declined from -$30 million in 2012 to -$141 million in 2014. On top of falling profits, the company earns a bottom-quintile ROIC of -74%. Investors are ignoring these fundamental issues in favor of misleading revenue growth, and the stock remains overvalued as a result. To justify the current price of $69/share, ServiceNow must immediately achieve a positive pre-tax (NOPBT) margin of 10% (compared to -21% in 2014) and grow revenue by 31% compounded annually for the next 15 years . We feel the expectations embedded in NOW are far too optimistic. Figures 3 and 4 show the rating landscape of all Mid Cap Growth 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 Max Lee 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

Scalper1 News