The Real Estate sector ranks eleventh out of the 11 sectors as detailed in our 2Q19 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Real Estate sector ranked eleventh. It gets our Very Unattractive rating, which is based on an aggregation of ratings of the 180 stocks in the Real Estate sector as of April 11, 2019. See a recap of our 1Q19 Sector Ratings here.

Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Real Estate sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 16 to 188). This variation creates drastically different investment implications and, therefore, ratings.

Investors should not buy any Real Estate ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, 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.

Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[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

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

Sources: New Constructs, LLC and company filings

Figure 2: Mutual Funds with the Best & Worst Ratings

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

Sources: New Constructs, LLC and company filings

CGMRX is the top-rated Real Estate mutual fund. There are no ETFs that receive a Neutral-or-better rating. CGMRX earns a Neutral rating.

SRVR is the worst rated Real Estate ETF and RYREX is the worst Real Estate mutual fund. They both earn a Very Unattractive rating.

180 stocks of the 2750+ we cover are classified as Real Estate stocks.

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 Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. 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 Real Estate ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Ernst & Young’s recent white paper "Getting ROIC Right" proves the superiority of our holdings research and analytics.