Sector Ratings For ETFs & Mutual Funds: 1Q19

At the beginning of the first quarter of 2019, the Consumer Non-cyclicals, Financials, and Basic Materials sectors earn Attractive-or-better ratings. Our sector ratings are based on the normalized aggregation of our stock ratings for every stock in each sector. Our stock ratings are based on five criteria that assess a firm’s business strength and valuation. See last quarter’s Sector Ratings here.

Investors looking for sector funds that hold quality stocks should look no further than the Consumer Non-cyclicals and Financials sectors. These sectors house the highest rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management, or good stock picking, with low total annual costs.

Attractive-or-better ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) cheap funds can dupe investors and (2) investors should invest only in funds with good stocks and low fees.

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]

See Figures 4 through 13 for a detailed breakdown of ratings distributions by sector. 

Figure 1: Ratings for All Sectors


Source: New Constructs, LLC and company filings

To earn an Attractive-or-better Predictive Rating, an ETF or mutual fund must have high-quality holdings and low costs. Only the top 30% of all ETFs and mutual funds earn our Attractive or better ratings.

Fidelity MSCI Consumer Staples Index ETF (FSTA) is the top rated Consumer Non-cyclicals fund. It gets our Very Attractive rating by allocating over 72% of its value to Attractive-or-better-rated stocks.

Rydex Series Real Estate Fund (RYREX) is the worst rated Real Estate fund. It gets our Very Unattractive rating by allocating over 59% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors annual costs of 8.39%.

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