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

By | August 27, 2015

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Summary The Mid Cap Value style ranks seventh in Q3’15. Based on an aggregation of ratings of 15 ETFs and 141 mutual funds. SYLD is our top-rated Mid Cap Value ETF and HAMVX is our top-rated Mid Cap Value mutual fund. The Mid Cap Value style ranks seventh 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 15 ETFs and 141 mutual funds in the Mid Cap Value style as of July 20, 2015. 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 Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 39 to 559). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid 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 Four ETFs 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 (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 Nationwide Herndon Mid Cap Value Fund ( NWWQX , NWWPX , NWWNX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Cambria Shareholder Yield ETF (NYSEARCA: SYLD ) is the top-rated Mid Cap Value ETF and the Harbor Mid Cap Value Fund (MUTF: HAMVX ) is the top-rated Mid Cap Value mutual fund. SYLD earns a Very Attractive rating and HAMVX earns a Neutral rating. The RevenueShares Mid Cap Fund ETF (NYSEARCA: RWK ) is the worst-rated Mid Cap Value ETF and the Touchstone Mid Cap Value Fund (MUTF: TCVAX ) is the worst-rated Mid Cap Value mutual fund. RWK earns a Neutral rating and TCVAX earns a Very Dangerous rating. The Gap, Inc. (NYSE: GPS ) is one of our favorite stocks held by Mid Cap Value funds and earns our Very Attractive rating. Since 2008, the company has grown after-tax profit ( NOPAT ) by 5% compounded annually. The company currently earns a top-quintile return on invested capital ( ROIC ) of 16%, which is up from 12% in 2008. Operating efficiency has improved and the NOPAT margin has risen from 7% in 2012 to the current 9%. Despite these improvements, the stock remains undervalued. At the current price of $37/share, Gap has a price to economic book value ( PEBV ) of 0.9. This ratio implies that the market expects the company’s profits to permanently decline by 10%. If Gap can grow NOPAT by just 3% for the next five years , the stock is worth $48/share – a 50% upside. Navios Maritime Holdings, Inc. (NYSE: NM ) is one of our least favorite stocks held by Mid Cap Value funds and earns our Dangerous rating. Since 2011, the company’s NOPAT has declined by 23% compounded annually. ROIC halved from 6% to a bottom-quintile 3% over the same time period. In addition, Navios’ free cash flow yield is a subpar -3%. The market has not yet caught on to Navios’ poor underlying fundamentals, and the stock remains overvalued. To justify its current price of $3/share, the company must grow NOPAT by 7% compounded annually for the next 11 years . This level of NOPAT growth might not seem like much, but considering the recent trend of declining profits and that Navios has only grown NOPAT once in consecutive years in its history, we believe expectations in the current stock price are overly optimistic. Figures 3 and 4 show the rating landscape of all Mid 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 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

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