Financials Sector 3Q18: Best and Worst

David Trainer  |

Image via Jason Baker/Flickr CC

The Financials sector ranks seventh out of the 11 sectors as detailed in our 3Q18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Financials sector ranked third. It gets our Neutral rating, which is based on an aggregation of ratings of the 437 stocks in the Financials 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 Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 421). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Financials 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 - Top 5

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

Sources: New Constructs, LLC and company filings

Three ETFs ( (FNCF),  (JHMF),  (PFI)) 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

Two mutual funds (FSVLX, ICFSX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

IYG is the top-rated Financials ETF and JRGRX is the top-rated Financials mutual fund. Both earn a Very Attractive rating.

KBWD is the worst rated Financials ETF and RYFNX is the worst rated Financials mutual fund. KBWD earns a Neutral rating and RYFNX earns a Very Unattractive rating.

437 stocks of the 2850+ we cover are classified as Financials 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 Financials 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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
KIE SPDR S&P Insurance 32.15 0.00 0.00 22,803
KCE SPDR S&P Capital Markets 57.52 0.14 0.25 792
KBWP Invesco KBW Property & Casualty Insurance ETF 64.02 0.20 0.31 725 Trade
AIRR First Trust RBA American Industrial Renaissance ETF 28.23 -0.01 -0.04 1,881 Trade
FTXO First Trust Nasdaq Bank ETF 28.63 -0.03 -0.12 131,588 Trade
KBWD Invesco KBW High Dividend Yield Financial ETF 23.33 -0.07 -0.30 24,487 Trade
PSCF Invesco S&P SmallCap Financials ETF 59.02 0.07 0.12 7,042 Trade
FFTY Innovator IBD 50 37.87 0.54 1.45 33,715
IAI iShares U.S. Broker-Dealers & Securities Exchanges 64.08 0.25 0.39 7,038
IYG iShares U.S. Financial Services 136.11 0.51 0.38 8,691

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