Best And Worst Q3 2020: Large Cap Value ETFs And Mutual Funds

Best And Worst Q3 2020: Large Cap Value ETFs And Mutual Funds

The Large Cap Value style ranks first out of the 12 fund styles as detailed in our Q3’20 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Value style ranked first as well. It gets our Very Attractive rating, which is based on an aggregation of ratings of 67 ETFs and 780 mutual funds in the Large Cap Value style. See a recap of our Q2’20 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Large Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 808). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Large Cap Value style should buy one of the Very Attractive rated ETFs or mutual funds from Figures 1 and 2.

Figure 1: ETFs with the Best and Worst Ratings

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Four ETF’s (EDOW, SDGA, DJD, and ODYN) 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 and 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

Four mutual funds (FVLIX, DHQIX, FVLCX, and DHQCX) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums.

Vanguard High Dividend Yield Index Fund (VYM) is the top-rated Large Cap Value ETF and Fidelity Advisor Dividend Growth Fund (FZADX) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating.

Invesco S&P Small Cap High Dividend Low Volatility ETF (XSHD) is the worst rated Large Cap Value ETF and Upright Growth & Income Fund (UPDDX) is the worst rated Large Cap Value mutual fund. XSHD earns an Unattractive rating and UPDDX earns a Very Unattractive rating.

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.

Performance of Holdings = Performance of Fund

Analyzing each holding within funds is no small task. We perform this diligence with scale. More of the biggest names in the financial industry (see 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 Large Cap Value 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

This article originally published on July 23, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler 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.

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