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Best And Worst Q1’16: Mid Cap Blend ETFs, Mutual Funds And Key Holdings

The Mid Cap Blend style ranks sixth out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Mid Cap Blend style ranked eighth. It gets our Neutral rating, which is based on aggregation of ratings of 18 ETFs and 319 mutual funds in the Mid Cap Blend style. See a recap of our Q4’15 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 19 to 3336). 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 Four ETFs 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 Five mutual funds are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The PowerShares S&P MidCap Low Volatility Portfolio (NYSEARCA: XMLV ) is the top-rated Mid Cap Blend ETF and the ClearBridge Mid Cap Fund (MUTF: LSIRX ) is the top-rated Mid Cap Blend mutual fund. XMLV earns an Attractive rating and LSIRX earns a Very Attractive rating. The Guggenheim Raymond James SB-1 Equity ETF (NYSEARCA: RYJ ) is the worst-rated Mid Cap Blend ETF and the RBC Mid Cap Value Fund (MUTF: RBMAX ) is the worst-rated Mid Cap Blend mutual fund. RYJ earns a Neutral rating and RBMAX earns a Very Dangerous rating. Amdocs (NASDAQ: DOX ) remains one of our favorite stocks held by LSIRX and earns a Very Attractive rating. Since 1998, Amdocs has grown after-tax profit ( NOPAT ) by 16% compounded annually. The company has earned a double-digit return on invested capital ( ROIC ) every year for the past decade and currently earns a 12% ROIC. The impressive profit growth achieved by Amdocs has not gone unnoticed, as the stock is up 90% over the past five years. However, shares remain undervalued. At its current price of $55/share, Amdocs has a price-to-economic-book value ( PEBV ) ratio of 1.0. This ratio means the market expects Amdoc’s NOPAT to never meaningfully grow from current levels. If Amdocs can grow NOPAT by just 6% compounded annually for the next decade , the stock is worth $72/share today – a 29% upside. Zayo Group (NYSE: ZAYO ) is one of our least favorite stocks held by Mid Cap Blend ETFs and mutual funds. Zayo earns a Dangerous rating. Since Zayo’s IPO, the company’s economic earnings have not only remained negative, but also declined from -$137 million in 2013 to -$165 million over the last twelve months. Over this same time, Zayo’s ROIC has consistently ranked in the bottom quintile and is currently a bottom quintile 4%. Despite the deterioration of the business, ZAYO remains overvalued. To justify its current price of $24/share, Zayo must grow NOPAT by 13% compounded annually for the next 13 years . The expectations embedded in the stock price provide no room for error and only large downside risk. 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 Kyle Guske II receive no compensation to write about any specific stock, 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. 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.

Robo Rise Barred By High Client Acquisition Cost

Robo-advisors need clients to operate and the cost of acquiring clients in financial services is high. To us, this is the elephant in the robo-advisor room that is seldom discussed – which we believe is a strategic failure of the highest order. It is an overriding concern that hangs over all other discussions about robo-advisors. Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur. When total costs are compared to clients gained, the results can be surprisingly high. Lucian Camp calculates the cost of acquiring a client in the UK to be around £200 (US$312). This cost is beyond the means of many advisory firms, which is why they grow rather slowly – largely through word of mouth referral. In the past, they might have relied on product manufacturers and distributors to provide them with marketing support. Under new regulations in the UK, such supports are now largely no longer possible, but they continue to thrive in the US marketplace. In a world where former specialties have become commoditized, being able to make a financial product or service no longer makes you special as it once did. Where, in the past, you may have been able to extract an economic rent because you occupied a position of advantage, market forces have now equalized you. Today, the ability (knowledge) and capacity (cash flow) to quickly market financial products to scale is what separates successful financial services businesses from the ‘also-rans’. It does not matter if you arrive at the marketplace with a better mousetrap if that trap is hidden where the mice cannot find it. Cheese – in the form of marketing, advertising and promotion – will help to attract them. But cheese isn’t cheap. We return, once again, to our initial caution – robo-advisors are very good at servicing customers, but do nothing to attract customers. Putting a robo-adviser to work effectively requires considerable investment in marketing and promotions, with no guarantee of success. Vitamins and supplements are equally generic. Yet, a family business in Australia figured out how to create a brand that made generic inputs ‘special’. In late 2015, a Chinese firm acquired the vitamin and supplement company, Swisse, for A$1.5 billion (US$1.05 billion). Swisse is a marketing machine – it is constantly in the news, through its sponsorship of high-profile ambassadors and it spends a lot of money on advertising. It is rumored that its annual marketing budget is A$50 million (US$35 million) when the cost of the raw materials for all of the products it makes is less than A$5 million (US$3.5 million). Vitamin C is not special – being part of the brand image and lifestyle Swisse promotes is special. More than US$1 billion worth of special! Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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. Additional disclosure: For FA audience/ Gil Weinreich

Do Stock Spinoffs Still Outperform? A Summary Of The Research

Ever since I read, You Can Be a Stock Market Genius , I’ve been fascinated with stock spinoffs. The book is written by Joel Greenblatt, who is a certified rock star in the value investing community. When he was running his highly concentrated hedge fund, he returned over 50% annually for a decade. Incredibly impressive. In the book, Greenblatt devotes chapter 3 to spinoffs. In that chapter, this line caught my eye: There are plenty of reasons why a company might choose to unload or otherwise separate itself from the fortunes of the business to be spun off. There is really one reason to pay attention when they do: you can make a pile of money investing in spinoffs. The facts are overwhelming. Stocks of spinoff companies, and even shares of the parent companies that do the spinning off, significantly and consistently outperform the market averages . Now this book was written in 1997. Since then, many a hedge fund manager has read the book and the “spinoff anomaly” is relatively well known. You would think that this inefficiency in the market would fade with time as more investors look to exploit it. As such, I wanted to review all studies that are available to see if spinoffs still do, in fact, outperform. Here is what I found: Here are the links to learn more about each study: Restructuring Through Spinoffs: The Stock Market Evidence J.P Morgan Research Report Corporate Spinoffs Beat The Market Credit Suisse: Do Spinoffs Create or Destroy Value The Stock Price Performance of Spinoff Subsidiaries, Their Parents, and the Spinoff ETF Global Spinoffs & The Hidden Value of Corporate Change In short, the answer is “Yes, spinoffs still outperform.” If you want to invest in spinoffs, consider investing in the Guggenheim Spinoff Index (NYSE: CSD ). But if you would prefer to pick your own spinoffs, stay tuned. I will be publishing a series of articles on the stock spinoff market and how to pick the winners. If you would like to read them, follow me on Seeking Alpha and you will be notified when I publish new research. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.