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Consumer Non-Cyclicals Sector 3Q18: Best and Worst

The Consumer Non-Cyclicals sector ranks first out of the 11 sectors. Here's why.
New Constructs leverages reliable fundamental data (https://bit.ly/381hKF1) to provide unconflicted insights into the fundamentals and valuation of private and public businesses. Combining human expertise with cutting-edge machine learning (ML) technologies (featured by Harvard Business School: https://hbs.me/308BaTX), the firm shines a light in the dark corners (e.g. footnotes) of hundreds of thousands of corporate financial filings to reveal critical details that drive uniquely comprehensive and independent credit and equity investment ratings, valuation models and research tools. The Journal of Financial Economics (https://bit.ly/3q6G8LI) reveals: 1. Legacy fundamental datasets suffer from significant inaccuracies, omissions and biases. 2. Only our “novel database” enables investors to overcome those flaws and apply reliable (https://bit.ly/303iuoQ) fundamental data in their research. 3. Our proprietary measures of Core Earnings (https://bit.ly/3bQVrD9) and Earnings Distortion (https://bit.ly/3uJkrF3) materially improve stock picking and forecasting of profits. Harvard Business School and MIT Sloan are not the only institutions to write papers on the superiority of our data and research. Find more papers here (https://bit.ly/3uGW0Ih). Now, all investors, not just Wall Street insiders, can access trustworthy research on the earnings and valuation of stocks, bonds, ETFs, and mutual funds. Elite money managers, advisors and institutions have relied (https://bit.ly/3sCT2mj) on us to lower risk and improve performance since 2004. See our client testimonials (https://bit.ly/3dZaa1G) and media coverage (https://bit.ly/3sxYDu2).
New Constructs leverages reliable fundamental data (https://bit.ly/381hKF1) to provide unconflicted insights into the fundamentals and valuation of private and public businesses. Combining human expertise with cutting-edge machine learning (ML) technologies (featured by Harvard Business School: https://hbs.me/308BaTX), the firm shines a light in the dark corners (e.g. footnotes) of hundreds of thousands of corporate financial filings to reveal critical details that drive uniquely comprehensive and independent credit and equity investment ratings, valuation models and research tools. The Journal of Financial Economics (https://bit.ly/3q6G8LI) reveals: 1. Legacy fundamental datasets suffer from significant inaccuracies, omissions and biases. 2. Only our “novel database” enables investors to overcome those flaws and apply reliable (https://bit.ly/303iuoQ) fundamental data in their research. 3. Our proprietary measures of Core Earnings (https://bit.ly/3bQVrD9) and Earnings Distortion (https://bit.ly/3uJkrF3) materially improve stock picking and forecasting of profits. Harvard Business School and MIT Sloan are not the only institutions to write papers on the superiority of our data and research. Find more papers here (https://bit.ly/3uGW0Ih). Now, all investors, not just Wall Street insiders, can access trustworthy research on the earnings and valuation of stocks, bonds, ETFs, and mutual funds. Elite money managers, advisors and institutions have relied (https://bit.ly/3sCT2mj) on us to lower risk and improve performance since 2004. See our client testimonials (https://bit.ly/3dZaa1G) and media coverage (https://bit.ly/3sxYDu2).

The Consumer Non-cyclicals sector ranks first out of the 11 sectors as detailed in our 3Q18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Non-cyclicals sector ranked first. It gets our Very Attractive rating, which is based on an aggregation of ratings of the 143 stocks in the Consumer Non-cyclicals secto. See a recap of our 2Q18 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Consumer Non-cyclicals sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 114). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Consumer Non-cyclicals sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

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

Three ETFs (IECS, CNSF, JHMS) 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

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings

FSTA is the top-rated Consumer Non-cyclicals ETF and VCSAX is the top-rated Consumer Non-cyclicals mutual fund. Both earn a Very Attractive rating.

PSCC is the worst rated Consumer Non-cyclicals ETF and PGCOX is the worst rated Consumer Non-cyclicals mutual fund. PSCC earns a Neutral rating and PGCOX earns an Unattractive rating.

143 stocks of the 2850+ we cover are classified as Consumer Non-cyclicals 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 Consumer Non-cyclicals 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

This article originally published on July 17, 2018.

Disclosure: David Trainer, Peter Apockotos, and Kyle Guske receive no compensation to write about any specific stock, sector or theme.

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[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.

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