Best & Worst ETFs And Mutual Funds: Small Cap Value Style

Out of the twelve fund styles I detailed in my Style Rankings for ETFs and Mutual Funds report, the Small Cap Value style ranks last. It gets my Dangerous rating, which is based on aggregation of ratings of 15 ETFs and 236 mutual funds in the Small Cap Value style as of October 24, 2013. Prior reports on the best & worst ETFs and mutual funds in every sector and style are here.

Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Small Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 19 to 1626). This variation creates drastically different investment implications and, therefore, ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst, which allocate too much value to Neutral-or-worse-rated stocks.

To identify the best and avoid the worst ETFs and mutual funds within the Small Cap Value style, investors need a predictive rating based on (1) stocks ratings of the holdings and (2) the all-in expensesof each ETF and mutual fund. Investors need not rely on backward-looking ratings. My fund rating methodology is detailed here.

Investors should not buy any Small Cap Value ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this style, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off. Here’s the list of our top-rated stocks.

Get my ratings on all ETFs and mutual funds in this style by searching for Small Cap Value on my free mutual fund and ETF screener.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

4Q!3_SmallCapValue12* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

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David Trainer and Jared Melnyk receive no compensation to write about any specific stock, sector, style or theme.

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