Best And Worst Q3 2020: Small-Cap Blend ETFs And Mutual Funds

Best And Worst Q3 2020: Small-Cap Blend ETFs And Mutual Funds

The Small-Cap Blend style ranks tenth out of the twelve fund styles as detailed in our Q3’20 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small-Cap Blend style ranked tenth as well. It gets our Unattractive rating, which is based on an aggregation of ratings of 57 ETFs and 767 mutual funds in the Small-Cap Blend 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 Small-Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 2531). 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.

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

Eight ETFs (CALF, CSF, VAMO, SQLV, ROSC, CSA, TPSC, and FSMD) 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

James Small Cap Fund (JASCX) and Mondrian U.S. Small Cap Equity Fund (MPUSX) are excluded from Figure 2 because their TNAs are below $100 million and do not meet our liquidity minimums.

Invesco S&P MidCap Low Volatility ETF (XMLV) is the top-rated Small-Cap Blend ETF and Royce Small Cap Value Fund (RVVHX) is the top-rated Small-Cap Blend mutual fund. XMLV earns an Attractive rating and RVVHX earns a Very Attractive rating.

IQ Chaikin U.S. Small Cap ETF (CSML) is the worst rated Small-Cap Blend ETF and ProFunds Small Cap ProFund (SLPSX) is the worst rated Small-Cap Blend mutual fund. CSML earns an Unattractive rating and SLPSX 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 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

This article was originally published on July 24, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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