Small Cap Blend Style 2Q18: Best And Worst
David Trainer | Jun 06, 2018 09:21AM ET
The Small Cap Blend style ranks tenth out of the twelve fund styles as detailed in our 1Q18 Style Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Small Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 3149). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Small Cap Blend style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
Our [2] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
Figure 1: ETFs with the Best & Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Six ETFs are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Boston Trust Small Cap, Fidelity Small Cap Stock K6 Fund (FKICX) and Summit Global Investments Small Cap Low Volatility Fund (SCLVX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
WisdomTree MidCap Earnings (NYSE:EZM) is the top-rated Small Cap Blend ETF and Fidelity Advisor Series Small Cap is the top-rated Small Cap Blend mutual fund. EZM earns an Attractive rating and FSSFX earns a Very Attractive rating.
PowerShares Russell 2000 Equal Weight (NYSE:EQWS) is the worst rated Small Cap Blend ETF and ProFunds Small Cap ProFund (SLPSX) is the worst rated Small Cap Blend mutual fund. EQWS earns an Unattractive rating and SLPSX earns a Very Unattractive rating.
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The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.
PERFORMANCE OF HOLDINGS = PERFORMANCE OF FUND
Analyzing each holding within funds is no small task. Our At BlackRock, Machines Are Rising Over Managers to Pick Stocks ) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.
Figures 3 and 4 show the rating landscape of all Small Cap Blend ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst Funds
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds from the Worst Funds
Sources: New Constructs, LLC and company filings
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.
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