The Best Style Of ETFs For Q1 2017
David Trainer | Mar 23, 2017 10:05AM ET
Finding the best ETFs is an increasingly difficult task in a world with so many choices from which to choose.h3 Don’t Trust ETF Labels/h3
There are at least 83 different All Cap Blend ETFs and at least 293 ETFs across twelve styles. Do investors need 24+ choices on average per style? How different can the ETFs be?
Those 83 All Cap Blend ETFs are very different. With anywhere from 21 to 3,682 holdings, many of the All Cap Blend ETFs have drastically different portfolios, creating drastically different investment implications.
The same is true for the ETFs in any other style, as each offers a very different mix of good and bad stocks. Large Cap Blend ranks first for stock selection.
h3 A Recipe for Paralysis By Analysis/h3We think the large number of All Cap Blend (or any other) style ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, that can be as many as 3,682 stocks, and sometimes even more, for one ETF.
Any investor focused on fulfilling fiduciary duties recognizes that analyzing the holdings of an ETF is critical to finding the best ETF. Figure 1 shows our top rated ETF for each style.
Sources: New Constructs, LLC and company filings
Amongst the ETFs in Figure 1, PowerShares Low Volatility Portfolio (NYSE:SPLV) ranks first overall, First Trust Morningstar Dividend Leaders Index (NYSE:FDL) ranks second, and PowerShares S&P 500 Downside Hedged Portfolio (NYSE:PHDG) ranks third. Vanguard Small Cap Growth Index (NYSE:VBK) ranks last.
h3 Avoid “The Danger Within”/h3Why do you need to know the holdings of ETFs before you buy?
You need to be sure you do not buy an ETF that might blow up. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the ETF’s performance will be bad.
PERFORMANCE OF FUND’S HOLDINGS = PERFORMANCE OF FUND
h3 Finding Funds Rated By Their Holdings/h3
Get The News You Want
Our ETF ratings leverage our stock coverage. We rate ETFs based on the aggregated ratings of the stocks each ETF holds.
PowerShares S&P 500 Low Volatility Portfolio is not only the top-rated All Cap Blend ETF, but is also the overall best style ETF out of the 293 style ETFs that we cover.
The worst ETF in Figure 1 is Vanguard Small Cap Growth Index, which gets a Neutral rating. One would think ETF providers could do better for this style.
Disclosure: David Trainer, Kyle Guske II, and Kyle Martone receive no compensation to write about any specific stock, style, or theme.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.