Tag Archives: mutual funds

Best And Worst: Large Cap Blend ETFs, Mutual Funds, And Key Holdings

Summary Large Cap Blend style ranks second in 2Q15. Based on an aggregation of ratings of 53 ETFs and 908 mutual funds. UDOW is our top rated Large Cap Blend ETF and GQLOX is our top rated Large Cap Blend mutual fund. The Large Cap Blend style ranks second out of the 12 fund styles as detailed in our 2Q15 Style Ratings report . It gets our Attractive rating, which is based on aggregation of ratings of 53 ETFs and 908 mutual funds in the Large Cap Blend style. Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Large Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 15 to 1364). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Blend 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. Arrow QVM Equity Factor ETF (NYSEARCA: QVM ) IS excluded from Figure 1 because its 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. ProShares UltraPro Dow30 ETF (NYSEARCA: UDOW ) is our top-rated Large Cap Blend ETF and GMO Quality Fund (MUTF: GQLOX ) is our top-rated Large Cap Blend mutual fund. Both earn a Very Attractive rating. One of our favorite stocks held by Large Cap Blend funds is Johnson & Johnson (NYSE: JNJ ). In 2014, Johnson & Johnson earned an after-tax operating profit ( NOPAT ) of almost $17 billion; its highest ever in our model. The company has been very consistent over the last decade with regard to its financial performance. NOPAT has grown by 8% compounded annually since 2004 and Johnson & Johnson’s return on invested capital (NASDAQ: ROIC ) has also remained above 14% every year over the last decade. This consistency has allowed the company to continually increase economic earnings every year over this same time frame. Despite the growth in the business, the stock is currently undervalued. At its current price of $98/share, JNJ has a price to economic book value (PEBV) ratio of 1.0. This ratio implies the market expects Johnson & Johnson’s NOPAT to never grow from current levels. Meanwhile, if Johnson & Johnson can grow NOPAT by 7% compounded annually for the next 5 years , the company is worth $140/share- a 43% upside from current levels. These expectations could be easily surpassed given the company’s long and consistent history of generating shareholder value. Ark Innovation ETF (NYSEARCA: ARKK ) is our worst-rated Large Cap Blend ETF and Lazard Enhances Opportunities Portfolio (MUTF: LEOOX ) is our worst-rated Large Cap Blend fund. ARKK earns a Dangerous rating and LEOOX earns a Very Dangerous rating. One of the worst stocks held by Large Cap Blend funds is recent Danger Zone stock Athenahealth (NASDAQ: ATHN ). Over the last three years many of the key financial metrics of the company have deteriorated. Athenahealth’s ROIC has declined from 14% in 2011 to just 1% in 2014. NOPAT has also had a very similar path, declining 42% compounded annually since 2011. In addition, for the past three years, Athenahealth’s cost of capital ( WACC ) has exceeded its ROIC. This has caused the company to earn negative economic earnings and is an indication that the company is destroying shareholder value. Athenahealth’s stock price, however, has not reflected the fundamental deterioration of its underlying business. Since going public in 2007, the stock price has more than tripled. However NOPAT for Athenahealth has declined by 50% since 2007. To justify its current price of $117/share, the company would need to grow NOPAT 60% compounded annually for the next 11 years . This seems very optimistic considering the declining business operations as described above Figures 3 and 4 show the rating landscape of all Large Cap Blend ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds (click to enlarge) Figure 4: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources: Figures 1-4: New Constructs, LLC and company filings D isclosure: David Trainer owns JNJ. David Trainer and Allen L. Jackson receive no compensation to write about any specific stock, style, style or theme. Disclosure: The author is long JNJ. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Best And Worst: All Cap Value ETFs, Mutual Funds, And Key Holdings

Summary All Cap Value ranks sixth in 2Q15. Based on an aggregation of ratings of 256 mutual funds. FIKDX is our top rated All Cap Value mutual fund and COPLX is our worst rated All Cap Value mutual fund. The All Cap Value style ranks sixth out of the 12 fund styles as detailed in our 2Q15 Style Rankings report . It gets our Neutral rating, which is based on an aggregation of ratings of 256 mutual funds in the All Cap Value style. There are no All Cap Value ETFs under coverage. Figure 1 shows the five best rated and five worst rated All Cap Value mutual funds. Not all mutual funds are created the same. The number of holdings varies widely (from 22 to 1148). This variation creates drastically different investment implications and therefore, ratings. Investors seeking exposure to the All Cap Value style should buy one of the Attractive-or-better rated mutual funds from Figures 1 and 2. Figure 1: 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. LSV U.S. Managed Volatility Fund (LSVMX, LVAMX) is excluded from Figure 1 because its total net assets are below $100 million and do not meet our liquidity minimums. Advisors’ Inner Circle Frost Kempner Multi-Cap Deep Value Equity Fund (MUTF: FIKDX ) is our top rated All Cap Value mutual fund. One of our favorite stocks held by All Cap Value funds is Qualcomm (NASDAQ: QCOM ). Over the past decade, Qualcomm has grown after-tax operating profit ( NOPAT ) by 18% compounded annually. Every year since 2003, with the exception of 2008, Qualcomm has generated positive free cash flow , with a cumulative $27 billion in free cash flow over this timeframe. Economic earnings have also grown at a compounded annual rate of 20% and been positive in 15 of the past 17 years. Despite the excellent growth in the underlying business operations, the market has failed to properly value Qualcomm, creating a great investment opportunity. At its current price of ~$67/share, QCOM has a price to economic book value ( PEBV ) ratio of only 0.9. This ratio implies the market expects Qualcomm’s NOPAT to permanently decline by 10%. This seems unlikely given the strength of Qualcomm’s business. If Qualcomm can grow NOPAT by 10% compounded annually for the next six years , the stock is worth $108/share today – a 61% upside. Copley Fund, Inc. (MUTF: COPLX ) is our worst rated All Cap Value mutual fund One of the worst stocks currently in the All Cap Value style funds is Intersil Corporation (NASDAQ: ISIL ). We recently put ISIL in the Danger Zone , citing many of the problems below. Since 2006, Intersil’s NOPAT has declined by 24% compounded annually. Along with its declining NOPAT, the company’s margins have declined dramatically from a high of 19% in 2006 to their current level of 2%. Intersil’s ROIC has also declined to 0%, down from 8% in 2006. As a result, the company is extremely overvalued, with a PEBV ratio of 7.3. To justify its current valuation of $13/share, ISIL would need to grow NOPAT at 41% compounded annually for the next 13 years . This appears to very optimistic considering that ISIL has realized declining revenues since 2006. Figure 2 shows the rating landscape of all All Cap Value mutual funds. Figure 2: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources Figures 1-2: New Constructs, LLC and company filings D isclosure: David Trainer owns QCOM. David Trainer and Allen L. Jackson receive no compensation to write about any specific stock, style, style or theme. Disclosure: The author is long QCOM. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Best And Worst: All Cap Growth ETFs, Mutual Funds, And Key Holdings

Summary All Cap Growth style ranks fifth in 2Q15. Based on an aggregation of ratings of 517 mutual funds. DPUIX is our top rated All Cap Growth mutual fund and KAUAX is our worst rated All Cap Growth mutual fund. The All Cap Growth style ranks fifth out of the 12 fund styles as detailed in our 2Q15 Style Ratings report . It gets our Neutral rating, which is based on an aggregation of ratings of zero ETFs and 517 mutual funds in the All Cap Growth style. Figure 1 shows the five best rated and the five worst rated All Cap Growth mutual funds. Not all mutual funds are created the same. The number of holdings varies widely (from 20 to 2140). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All Cap Growth style should buy one of the Attractive-or-better rated mutual funds from Figure 1. Figure 1: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude mutual funds with TNAs less than $100 million for inadequate liquidity. Strategic Funds Dreyfus U.S. Equity (MUTF: DPUIX ) is our top-rated All Cap Growth mutual fund, and gets our Very Attractive rating. Over 30% of the stocks within this fund are rated Attractive or better. Even more impressive, 0% of the fund’s assets are allocated to Very-Dangerous-rated stocks. One of our favorite stocks in this fund is Target (NYSE: TGT ). Target has long been a staple of American consumer retail. It operates as a general merchandise retailer, selling everything from grocery goods to furniture to electronics and clothing. In fiscal 2015, Target saw strong growth in both revenues and after tax profits ( NOPAT ). Total sales grew 2% in 2014 and comparable store sales grew over 1%, showcasing strength in Target’s existing stores. Target also increased its return on invested capital ( ROIC ) to 9% in 2015, up from 8% the prior year. Best of all is the fact that Target has generated positive economic earnings every year for the past 17 years, showcasing its ability to consistently earn a return greater than its cost of doing business and to generate value for shareholders. At its current price of $80/share, Target has a price to economic book value ( PEBV ) ratio of only 1.1. This ratio implies that the market expects Target’s NOPAT to grow by only 10% from current levels. Meanwhile, if Target can grow NOPAT by only 4% compounded annually for the next eight years , the stock is worth $92/share today – a 15% upside. Federated Kaufmann Fund (MUTF: KAUAX ) is our worst rated All Cap Growth mutual Fund. It earns a Very Dangerous rating. One of the worst stocks in the fund is Actavis plc (NYSE: ACT ). In 2014, Actavis saw disappointing results in regards to ROIC and NOPAT growth. Actavis’ ROIC declined from 4% in 2013 to just 1% in 2014. NOPAT also declined 28% in 2014. The long-term trends for the company do not look promising either. Over the past decade, the company has never earned a ROIC above 7%. In 2004, NOPAT margin was 11% but has declined to just 3% in 2014. Due to the deteriorating fundamentals of the business, we believe the stock is overpriced. To justify its current price of ~$301/share, the company would need to grow NOPAT at a compounded annual rate of 36% for the next 13 years . This seems unreasonable given that the company has grown NOPAT by only 8% compounded annually over the past decade. Figure 2 shows the rating landscape of all All Cap Growth mutual funds. Figure 2: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources Figure 1-2: New Constructs, LLC and company filings D isclosure: David Trainer and Allen L. Jackson receive no compensation to write about any specific stock, style, style or theme. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.