Best And Worst Q4’15: Mid Cap Value ETFs, Mutual Funds And Key Holdings

By | November 24, 2015

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Summary The Mid Cap Value style ranks seventh in Q4’15. Based on an aggregation of ratings of 14 ETFs and 120 mutual funds. SYLD is our top-rated Mid Cap Value style ETF and VEVRX is our top-rated Mid Cap Value style mutual fund. The Mid Cap Value style ranks seventh out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Mid Cap Value style ranked fifth. It gets our Dangerous rating, which is based on an aggregation of ratings of 14 ETFs and 120 mutual funds in the Mid Cap Value style. See a recap of our Q3’15 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 22 to 553). 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 The First Trust RBA Quality Income ETF (NASDAQ: QINC ) and the Direxion Value Line Mid- and Large-Cap High Dividend ETF (NYSEARCA: VLML ) 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 Cambria Shareholder Yield ETF (NYSEARCA: SYLD ) is the top-rated Mid Cap Value ETF and the Victory Sycamore Established Value Fund (MUTF: VEVRX ) is the top-rated Mid Cap Value mutual fund. SYLD earns a Very Attractive rating and VEVRX earns an Attractive rating. The PowerShares Dividend Achievers ETF (NYSEARCA: PEY ) 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. PEY earns a Dangerous rating and TCVAX earns a Very Dangerous rating. Ingram Micro Inc. (NYSE: IM ) is one of our favorite stocks held by Mid Cap Value ETFs and Mutual funds and earns our Very Attractive rating. Since 2011, Ingram Micro has grown after-tax profits ( NOPAT ) by 11% compounded annually. The company has improved its return on invested capital ( ROIC ) to 8% from 6% over this same timeframe. Ingram Micro is currently undervalued given the strength of its business. At its current price of $31/share, Ingram Micro has a price to economic book value ( PEBV ) ratio of 0.9. This ratio means the market expects Ingram Micro’s profits to permanently decline by 10%. If Ingram Micro can grow NOPAT by 6% compounded annually for the next five years , the stock is worth $36/share today – a 16% upside. LendingClub Corporation (NYSE: LC ) is one of our least favorite stocks held by Mid Cap Value ETFs and mutual funds and earns our Dangerous rating. Since 2009, LendingClub’s NOPAT has fallen from -$11 million to -$22 million on a trailing twelve-month basis. The company currently earns a bottom quintile ROIC of -4% and has a -15% free cash flow yield. After falling over 40% this year, investors may think that LC presents a great value, but we think differently. The expectations baked into the stock price still imply rather extraordinary growth. To justify its current price of $12/share, LendingClub must immediately achieve pre-tax margins of 8% (-14% in 2014) and grow revenues by 29% compounded annually for the next 12 years . 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 ETFs (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 Disclosure: David Trainer and Blaine Skaggs receive no compensation to write about any specific stock, style or theme. Scalper1 News

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