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

Summary Mid Cap Blend style ranks ninth in Q3’15. Based on an aggregation of ratings of 19 ETFs and 332 mutual funds. CZA is our top-rated Mid Cap Blend ETF and LSIRX is our top-rated Mid Cap Blend mutual fund. The Mid Cap Blend style ranks ninth out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Dangerous rating, which is based on an aggregation of ratings of 19 ETFs and 332 mutual funds in the Mid Cap Blend 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 Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 3281). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid 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. Sources: New Constructs, LLC and company filings The Proshares S&P MidCap 400 Dividend Aristocrats ETF (NYSEARCA: REGL ) and the Validea Market Legends ETF (NASDAQ: VALX ) 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 Boson Trust Midcap Fund (MUTF: BTMFX ) and the Johnson Opportunity Fund (MUTF: JOPPX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Guggenheim Mid-Cap Core ETF (NYSEARCA: CZA ) is the top-rated Mid Cap Blend ETF and the Legg Mason ClearBridge Mid Cap Core Fund (MUTF: LSIRX ) is the top-rated Mid Cap Blend mutual fund. CZA earns an Attractive rating and LSIRX earns a Very Attractive rating. The State Street Russell Small Cap Completeness ETF (NYSEARCA: RSCO ) is the worst-rated Mid Cap Blend ETF and the Satuit Capital US SMID Cap Fund (MUTF: SATDX ) is the worst-rated Mid Cap Blend mutual fund. RSCO earns a Dangerous rating and SATDX earns a Very Dangerous rating. The Goodyear Tire & Rubber Company (NASDAQ: GT ) is one of our favorite stocks held by Mid Cap Blend funds and earns our Attractive rating. Since 2009, the company has grown after-tax profit ( NOPAT ) by 24% compounded annually. Goodyear currently earns a return on invested capital ( ROIC ) of 9%, which is triple the 3% earned in 2009. On a trailing-twelve month basis, Goodyear has generated over $2.6 billion in free cash flow which results in an impressive 16% FCF yield. At the current price of $30/share, Goodyear Tire has a price to economic book value (PEBV) ratio of 0.6. This ratio implies that the market expects Goodyear’s profits to permanently decline by 40%. The ratio also tells us that the no-growth, or economic book value of GT is $46/share – a 53% upside. DreamWorks Animation (NASDAQ: DWA ), a prior Danger Zone stock , is one of our least favorite stocks held by Mid Cap Blend funds and earns our Dangerous rating. Since 2010, NOPAT has plummeted from $104 million to -$13 million as creating movies became more costly and less profitable. DreamWorks currently earns a bottom-quintile ROIC of 1%, which is a fraction of the 19% earned in 2009. Despite the deterioration of DreamWorks’ business strength, the stock remains overvalued. To justify the current price of $19/share, DreamWorks must immediately achieve pre-tax (NOPBT) margins of 10% (similar to 2013 margin versus -2.5% in 2014) and grow revenue by 20% compounded annually for the next eight years . We feel the expectations embedded in DWA are highly optimistic given that, in addition to the issues raised above, revenue has declined in each of the last four years. Figures 3 and 4 show the rating landscape of all Mid Cap Blend 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.

Market Crash Update – Market Lab Report – Premarket Pulse 8/24/15

We have discussed deteriorating market conditions over the past few weeks as markets have been unable to stage any meaningful rally this year despite full bore quantitative easing, thus have been showing signs of exhaustion. As we have said, markets are forward looking by typically 4 to 6 months thus seem to be telegraphing a rate hike within the next 6 months or sooner. Markets have historically corrected by 10% or more, sometimes into outright bear markets of 20%+ months ahead of the first rate hike. We have also discussed how commodities including oil, since late 2014, have continued to plummet, having had the fastest fall in nearly 40 years, second only to the plunge from July to September 2008, just before the great crash. This recent plunge in commodities has accelerated over the last two months.  Gil has also covered the short side of the market in great detail during the webinars over the past month, and the time to get aggressively short was back then. Even TSLA at 260 on Tuesday, about which we sent out a Short Sale Set-Up report to all members that morning before the open, was right in position to short for quick downside gains from that point. Thus members, and in particular webinar members, who have been privy to a number of stocks Gil has been working on the short side throughout August, should have been short stocks long before things got this ugly. As we get further and further extended to the downside, the odds of a very sharp and brutal (at least for shorts) snapback rally grows. This is the primary reason that selling into large breaks is prudent, and in fact, on the basis of Friday’s extreme sell-off, we both went to cash over the weekend after an outstanding short-sale “expedition” last week on both stocks and volatility-based ETFs. That said, we will be launching a beta version of the much awaited volatility model shortly.  Market conditions only worsened over the weekend, with China’s Shanghai Composite closing down -8.5%, sending futures down -3.4% on the S&P 500 and near limit down at -4.97% on the NASDAQ at the time of this writing.  Our thinking here is that any huge gap-down at today’s open might be an indication of short-term capitulation. Further, from a contrarian standpoint, the put-call spike and the scant number of bulls make for a possible bounce at this juncture. Therefore, it makes sense to allow for such a bounce, or even a short bearish consolidation, where short-sale target stocks have a chance to do the same and in the process bring themselves into lower-risk short-sale points within their patterns. Right now so many of these stocks are deep, deep down in their patterns as anything and everything Gil has discussed during the webinars as a short-sale target over the past month has been torn to shreds.  Thus the sloppy, sideways, trendless markets that started in late 2014 finally came to an abrupt end on Friday. Then, last night, China’s markets got crushed, falling 8.5% on the Shanghai Composite, placing it now 38% off its peak which wipes out its gains for 2015. Deepening concerns about China’s weakening economy are at the forefront as about 30% of all growth globally came from China in 2013 and 2014.  Our view is that one can handle things one of two ways. If you think you’re going to chase the market down on the short side, you had better have a nice profit cushion behind you from having already been short for most of the past week and/or month, and you intend to keep your stops on any new entries ridiculously tight. If you have short positions still on over the weekend, and stand to benefit handsomely from a big gap-down open today, then think seriously about using a capitulation selling wave as an opportunity to cover and put your profits in the bank. If not, then set trailing stops at the 10-day or 20-day moving averages on any existing short positions because we are likely getting closer to a potential snapback rally. If you’re doing very well on the short side over the past month, and this past week has become even more “orgasmic,” make sure you keep your emotions in check. It’s easy to be fat and happy here, and you should feel good if you’ve done well on the short side recently, but make sure you keep your greed in check!