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

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.

October 2015 U.S. Fund Flows Summary

By Tom Roseen For the first month in three investors were net purchasers of fund assets, injecting $44.8 billion (the largest net inflows since August 2014) into the conventional funds business (excluding ETFs) for October. However, for the fourth consecutive month stock & mixed-asset funds suffered net redemptions, handing back some $5.7 billion for October, while for the first month in five fund investors were net purchasers of fixed income funds, adding $4.3 billion to the macro-group for October. And for the fifth month in six, money market funds witnessed net inflows, taking in $46.3 billion. Despite a weaker-than-expected jobs report at the beginning of October, mixed economic data throughout the month, and a roller-coaster ride of corporate earnings reports, volatility remained below the long-term average of 20. Investors appeared to shrug off a disappointing nonfarm payrolls report that showed the U.S. had added a lower-than-expected 142,000 jobs for September as some investors began to believe the Federal Open Market Committee would not raise interest rates this year. A surprise cut in interest rates by the Peoples Bank of China (PBOC), better-than expected earnings reports from a few heavyweight tech firms, and hints from the European Central Bank (ECB) that further easing might be in the cards pushed stocks to a fourth consecutive week of plus-side performance and sent some investors into risker assets for the month, while others were content to pad the coffers of money market funds in a wait-and-see approach to investing. The Mixed-Asset Funds macro-classification (+$3.4 billion) attracted the strongest net inflows of Lipper’s five equity macro-classifications, while USDE funds experienced the largest outflows (-$8.5 billion). Large-cap funds (-$5.3 billion) suffered the largest monthly net redemptions of the capitalization groupings for the third consecutive month. In contrast, the ETF universe witnessed its ninth consecutive month of net inflows, taking in $28.3 billion for October (its largest net inflows since February 2015). For the second month in a row authorized participants (APs) were net purchasers of equity ETFs-injecting $16.3 billion, and for the fourth month in a row they were net purchasers of bond ETFs-injecting $12.0 billion for October (their largest net inflows since February). In response to the easy-money news from the PBOC and ECB, for the first month in four APs’ appetite for World Equity ETFs topped that for all other types of equity ETFs. The macro-classification witnessed the strongest net inflows (+$6.4 billion) of Lipper’s five equity-related macro-classifications, followed by Sector Equity ETFs (+$5.9 billion), USDE ETFs (+$4.0 billion), and Alternatives ETFs (+$0.1 billion). The Mixed-Asset ETFs macro-classification (-$0.1 billion) suffered the only net outflows for the month. If you’d like to read the entire October 2015 FundFlows Insight Report with all its tables and charts, please click here .

A Case For The South Korea ETF

EWY has enjoyed less volatility than most emerging market ETFs & single-country funds. SK Auto Industry picked up third quarter. Hyundai is making inroads to the luxury car space, bigger profit margins. The iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ) , which tries to reflect the performance of the MSCI Korea 25/50 Index, is down less than 4% year-to-date, a performance that is nothing to get excited about but one that is also noticeably better than widely followed, diversified emerging markets exchange traded funds. Since EWY, the largest South Korea trading in the U.S., has a reputation for being less volatile than benchmark emerging markets ETFs and plenty of single-country funds as well, it is not surprising the fund has been less bad than its counterparts. South Korea’s auto industry also picked up in the third quarter, with Hyundai Motors Co ( OTC:HYMPY ) revealing a 6.3% increase in car sales over October while Kia Motors ( OTC:KIMTF ) posted a 16% surge in sales, Maria Levitov reported for Bloomberg . Looking ahead, Hyundai is making inroads into the luxury car brand with its new Genesis premium car brand as a way to target high-end motorists and reverse sliding profits, Reuters reported. The $3.2 billion EWY allocates 21.5% of its weight to the giant South Korean conglomerate Samsung ( OTC:SSNNF ), meaning the ETF has hefty 36.3% weight to the technology sector. “EWY is down 16% overall from its high at 62.93 in April, due to a strong U.S. dollar, the devaluation of the Chinese yuan, and the crash in equity prices in China this past summer. Fundamentally, however, the Korean economy itself has not remarkably declined in a way that justifies the 16% decline in EWY’s price since July 2014. This has created a solid entry point for investors looking for strong growth potential over the mid-term,” according to a separate Seeking Alpha analysis of EWY. Higher dividend payouts and stock split are encouraging some investors. Korean companies are facing increased pressure from the government to raise dividends, which are among the lowest of any large economy in Asia. However, with Samsung shares tumbling, shareholder rewards probably are not enough to stoke significant interest in South Korean stocks in the near-term. [Samsung Weighs on South Korea ETFs] The low energy prices and cheap financing have also supported investor sentiment and positive outlook for earnings growth ahead. South Korea is a net energy importer, implying that it is one of the emerging markets that should be benefiting from low energy prices.