Small Cap Value Style

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

Screen Shot 2014-09-24 at 9.50.48 AM

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

Sources: New Constructs, LLC and company filings

Investment Managers Series Trust: Bernzott US Small Cap Value Fund (BSCVX), Advisors’ Inner Circle Fund: LSV Small Cap Value Fund (LSVQX), and Baird Funds, Inc. Baird SmallCap Value Fund BSVIX are excluded from Figure 2 because their total net assets TNA are below $100 million and do not meet our liquidity minimums.

First Trust Mid Cap Value AlphaDEX ETF FNK is my top-rated Small Cap Value ETF and Allianz Funds: AllianzGI NFJ Small-Cap Value Fund (ANFVX) is my top-rated Small Cap Value mutual fund. FNK earns my Attractive rating and ANFVX earns my Neutral rating.

PowerShares Zacks Micro Cap ETF PZI is my worst-rated Small Cap Value ETF and American Century Capital Portfolios, Inc. Small Cap Value Fund ACSCX is my worst-rated Small Cap Value mutual fund. PZI earns my Dangerous rating and ACSCX earns my Very Dangerous rating.

Figure 3 shows that 195 out of the 2119 stocks (over 10% of the market value) in Small Cap Value ETFs and mutual funds get an Attractive-or-better rating. However, only 1 out of 15 Small Cap Value ETFs (less than 1% of total net assets) and 0 out of 257 Small Cap Value mutual funds get an Attractive-or-better rating.

The takeaways are: mutual fund managers allocate too much capital to low-quality stocks and Small Cap Value ETFs hold poor quality stocks.

Figure 3: Small Cap Value Style Landscape For ETFs, Mutual Funds & Stocks

Screen Shot 2014-09-24 at 9.50.11 AM

Sources: New Constructs, LLC and company filings

As detailed in “Cheap Funds Dupe Investors”, the fund industry offers many cheap funds but very few funds with high-quality stocks, or with what I call good portfolio management.

Investors need to tread carefully when considering Small Cap Value ETFs and mutual funds, as only one ETF and no mutual funds in the Small Cap Value style allocate enough value to Attractive-or-better-rated stocks to earn an Attractive rating.

View single page >> |

Disclosure: NewConstructs staff receive no compensation to write about any specific stock, sector, or theme.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.