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Q4 2015 Investment Style Ratings For ETFs And Mutual Funds

Summary Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style. The primary driver behind an Attractive fund rating is good portfolio management (stock picking) combined with low total annual costs. Cheap funds can dupe investors and investors should invest only in funds with good stocks and low fees. At the beginning of the fourth quarter of 2015, only the Large Cap Value and Large Cap Blend styles earn an Attractive-or-better rating. Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style. See last quarter’s Style Ratings here. Investors looking for style funds that hold quality stocks should look no further than the Large Cap Blend and Large Cap Value styles. Not only do these styles receive our Attractive rating, they also house the most Attractive-or-better rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management , or good stock picking, with low total annual costs . Attractive-or-better ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) cheap funds can dupe investors and (2) investors should invest only in funds with good stocks and low fees. See Figures 4 through 13 for a detailed breakdown of ratings distributions by investment style. All of our reports on the best & worst ETFs and mutual funds in every investment style are available here . Figure 1: Ratings For All Investment Styles (click to enlarge) To earn an Attractive-or-better Predictive Rating, an ETF or mutual fund must have high-quality holdings and low costs. Only the top 30% of all ETFs and mutual funds earn our Attractive or better rating. The State Street SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) is the top rated Large Cap Value fund. It gets our Very Attractive rating by allocating over 51% of its value to Attractive-or-better-rated stocks. International Business Machines (NYSE: IBM ) is one of our favorite stocks held by DIA and receives our Attractive rating. Over the last decade, IBM has grown after-tax profit (NOPAT) by 8% compounded annually while doubling NOPAT margins. In addition to strong NOPAT growth, IBM has improved its return on invested capital ( ROIC ) to 12%, from 9% in 2005. Despite the strength in its business, IBM shares remain undervalued. At its current price of $140/share, IBM has a price to economic book value ratio ( PEBV ) of 0.8. This ratio implies that the market expects IBM’s NOPAT to permanently decline by 20%. Even if IBM can only grow NOPAT by 2% compounded annually for the next five years , the stock is worth $211/share today – a 51% upside. The ProFunds Small Cap Fund (MUTF: SLPSX ) is the worst rated Small Cap Blend fund and overall worst-rated style mutual fund. It gets our Very Dangerous rating by allocating 20% of its value to Dangerous-or-worse-rated stocks and 60% held in cash. Making matters worse, it charges investors total annual costs of 5.50%. Why should investors pay such high fees when over half their assets are held in cash? Denny’s Corporation (NASDAQ: DENN ) is one of our least favorite stocks held by Small Cap ETFs and mutual funds and earns our Dangerous rating. Over the last five years, the company’s NOPAT has declined by 7% compounded annually. The company currently earns a 6% ROIC. Despite declining profits, DENN has soared over the past five years and shares are up nearly 250%. This price appreciation has left DENN significantly overvalued. To justify its current price of $11/share, Denny’s must grow NOPAT by 10% compounded annually for the next 15 years . This expectation seems rather optimistic given Denny’s failure to grow profits over the past five years. Figure 2 shows the distribution of our Predictive Ratings for all investment style ETFs and mutual funds. Figure 2: Distribution of ETFs & Mutual Funds (Assets and Count) by Predictive Rating (click to enlarge) Figure 3 offers additional details on the quality of the investment style funds. Note that the average total annual cost of Very Dangerous funds is almost four times that of Very Attractive funds. Figure 3: Predictive Rating Distribution Stats (click to enlarge) * Avg TAC = Weighted Average Total Annual Costs This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs. Investors deserve to have the best of both and we are here to give it to them. Ratings by Investment Style Figure 4 presents a mapping of Very Attractive funds by investment style. The chart shows the number of Very Attractive funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Attractive. Figure 4: Very Attractive ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 5 presents the data charted in Figure 4 Figure 5: Very Attractive ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 6 presents a mapping of Attractive funds by investment style. The chart shows the number of Attractive funds in each style and the percentage of assets allocated to Attractive-rated funds in each style. Figure 6: Attractive ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 7 presents the data charted in Figure 6. Figure 7: Attractive ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 8 presents a mapping of Neutral funds by investment style. The chart shows the number of Neutral funds in each investment style and the percentage of assets allocated to Neutral-rated funds in each style. Figure 8: Neutral ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 9 presents the data charted in Figure 8. Figure 9: Neutral ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 10 presents a mapping of Dangerous funds by fund style. The chart shows the number of Dangerous funds in each investment style and the percentage of assets allocated to Dangerous-rated funds in each style. The landscape of style ETFs and mutual funds is littered with Dangerous funds. Investors in Small Cap Blend funds have put over 57% of their assets in Dangerous-rated funds. Figure 10: Dangerous ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 11 presents the data charted in Figure 10. Figure 11: Dangerous ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 12 presents a mapping of Very Dangerous funds by fund style. The chart shows the number of Very Dangerous funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Dangerous. Figure 12: Very Dangerous ETFs & Mutual Funds by Investment Style (click to enlarge) Figure 13 presents the data charted in Figure 12. Figure 13: Very Dangerous ETFs & Mutual Funds by Investment Style (click to enlarge) Source Figures 1-13: New Constructs, LLC and company filings D isclosure: David Trainer and Thaxston McKee receive no compensation to write about any specific stock, sector or theme.

A New Sector ETF Defends Against Rising Rates On The Cheap

10-year Treasury yields have begun pricing in that view by soaring nearly 8.5 percent over the past month. With rising rates right around the corner (maybe), investors might want to have a look at a new financial services ETF, XLFS. Another way of looking at XLFS is that the new ETF is XLF without real estate stocks, an important feature. By Todd Shriber, ETF Professor As investors have come to grips with the fact that it is highly likely that the Federal Reserve will finally raise interest rates next month, 10-year Treasury yields have begun pricing in that view by soaring nearly 8.5 percent over the past month. Although financial services stocks, on a historical basis, have questionable reactions to increases in borrowing costs, conventional wisdom holds that the sector is positively correlated to higher interest rates. The corresponding exchange traded funds are reflecting that thesis as the Financial Select Sector SPDR ETF (NYSEARCA: XLF ), the largest financial services ETF, is higher by 2.1 percent over the past month. With rising rates right around the corner (maybe), investors might want to have a look at a new financial services ETF, the Financial Services Select Sector SPDR ETF (NYSEARCA: XLFS ) . The Financial Services Select Sector SPDR, which debuted last month, was brought to market ahead of real estate becoming the 11th Global Industry Classification Standard (GICS) sector. That change is scheduled to occur after markets close on August 31, 2016. In November 2014, S&P Dow Jones Indices and MSCI, two of the largest providers of indices for use with ETFs, announced real estate – previously included as part of the financial services group – would become its own sector . Another way of looking at XLFS is that the new ETF is XLF without real estate stocks, an important feature when considering real estate equities are vulnerable to rising interest rates and currently richly valued relative to the broader market. According to AltaVista Research data, the Real Estate Select Sector SPDR ETF (NYSEARCA: XLRE ) , which debuted with XLFS, has an estimated 2015 price-to-earnings ratio of 36.4 compared to 17.8 for the S&P 500. Underscoring how much of a difference real estate exposure makes in terms of valuation, the P/Es for XLFS and XLF are 12.9 and 14.4, respectively. Remember, XLFS does not hold real estate stocks, but XLF does. “Financial Services firms have made steady improvements in profitability (margins and ROE) since the Financial Crisis, and with lower leverage hopefully they will be more stable as well. Given the robust, double-digit long-term EPS growth projections and reasonable valuation multiples, the sector looks attractive at these levels,” said AltaVista. The research firm rates XLFS neutral. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B ) and Wells Fargo & Co. (NYSE: WFC ) combine for over 20 percent of XLFS’s weight. Other top 10 holdings include Bank of America Corp. (NYSE: BAC ) and Citigroup Inc. (NYSE: C ). Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Lipper’s Q3 2015 U.S. Mutual Funds And Exchange-Traded Products Snapshot

By Tom Roseen Conventional Mutual Funds Summary Global markets took it on the chin over the last three months, with fears of slowing global growth, Federal Reserve tightening measures, slumping commodity prices, and drug-pricing issues sending the major indices down during the quarter more than 10% from their recent market highs. Total net assets (TNA) in the conventional funds business (not including exchange-traded products [ETPs] and variable insurance products [VIPs]) dropped below the $15-trillion mark for the first quarter in six. As a result of large declines in the price of oil and on fears of China’s slowing growth, for Q3 2015 the emerging markets funds macro-group witnessed the largest relative (-17.52%) decline in total assets under management from the prior quarter-end, while the large-cap funds macro-group suffered a decline of $152.3 billion-the largest absolute decline in total assets under management. Investors ducked for cover during the quarter and padded the coffers of money market funds. The fund group witnessed the largest relative (+1.35%) and absolute (+$30.5 billion) increase in TNA for the quarter. Open-End Funds’ (ex-ETPs’) Total Net Assets ($Mil) by Macro-Group, Rolling Quarters Through Q3 2015 (click to enlarge) Source: Thomson Reuters Lipper Exchange-Traded Products Summary On fears of slowing global growth, Federal Reserve tightening measures, and slumping commodity prices during Q3 2015, TNA in U.S. ETPs (including exchange-traded funds, exchange-traded notes, exchange-traded commodities, limited partnership commodity pools, master limited partnerships, and exchange-traded fund [ETF] unit investment trusts) dropped below the $2.0-trillion mark for the first quarter in four. For Q3 2015 the emerging markets ETPs macro-group witnessed the largest relative (-26.00%) and absolute decline (-$37.0 billion) in TNA from the prior quarter-end. The alternatives ETPs macro-group experienced the largest relative (+26.35%) increase in TNA for Q3, while the Short-/Intermediate-Term Bond ETP macro-group witnessed the largest absolute increase in TNA (+$14.3 billion) for the quarter. (click to enlarge) Source: Thomson Reuters Lipper In the complete issue of Lipper’s Q3 2015 U.S. Mutual Funds and Exchange-Traded Products Snapshot , we feature a summary of total net assets, estimated net flows, and new fund creations for conventional funds and exchange-traded products for Q3 2015, comparing those changes to prior quarters and highlighting the largest individual gainers and losers of both groups. Lipper’s U.S. Mutual Funds and Exchange-Traded Products Snapshot provides readers a powerful, easy-to-use guide and quick reference tool to help them discern fund trends for the quarter.