Sector Ratings for ETFs & Mutual Funds: 3Q19

David Trainer  |


At the beginning of the third quarter of 2019, only the Telecom Services, Financials, and Consumer Non-cyclicals 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 Financials and Consumer Non-cyclicals sectors. These sectors house a large portion of 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. See our ETF & mutual fund screener for rankings, ratings and reports on 7000+ mutual funds and 400+ ETFs. Our fund rating methodology is detailed here.

All of our reports on the best & worst ETFs and mutual funds in every sector are available here.

Figure 1: Ratings for All Sectors

Image Source: New Constructs, LLC

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.

iShares U.S. Telecommunications ETF (IYZ) is the top rated Telecom Services fund. It gets our Very Attractive rating by allocating over 29% of its value to Attractive-or-better-rated stocks.

Rydex Real Estate Fund (RYREX) is the worst Real Estate fund. It gets our Very Unattractive rating by allocating over 66% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors annual costs of 5.58%.

Figure 2 shows the distribution of our Predictive Ratings for all sector ETFs and mutual funds.

Figure 2: Distribution of ETFs & Mutual Funds (Assets and Count) by Predictive Rating

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 3 offers additional details on the quality of the sector funds. Note that the average total annual cost of Very Unattractive funds is almost six times that of Very Attractive funds.

Figure 3: Predictive Rating Distribution Stats

Image Source: New Constructs, LLC

* Avg TAC = Weighted Average Total Annual Costs

Source: New Constructs, LLC and company filings

This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs. Investors deserve to have the best of both and we are here to give it to them.

Ratings by Sector

Figure 4 presents a mapping of Very Attractive funds by sector. The chart shows the number of Very Attractive funds in each sector and the percentage of assets in each sector allocated Very Attractive-rated funds.

Figure 4: Very Attractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 5 presents the data charted in Figure 4.

Figure 5: Very Attractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 6 presents a mapping of Attractive funds by sector. The chart shows the number of Attractive funds in each sector and the percentage of assets in each sector allocated to Attractive-rated funds.

Figure 6: Attractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 7 presents the data charted in Figure 6.

Figure 7: Attractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 8 presents a mapping of Neutral funds by sector. The chart shows the number of Neutral funds in each sector and the percentage of assets in each sector allocated to Neutral-rated funds.

Figure 8: Neutral ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 9 presents the data charted in Figure 8.

Figure 9: Neutral ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 10 presents a mapping of Unattractive funds by sector. The chart shows the number of Unattractive funds in each sector and the percentage of assets in each sector allocated to Unattractive-rated funds.

The landscape of sector ETFs and mutual funds is littered with Unattractive funds. Investors in Real Estate have put over 88% of their assets in Unattractive-rated funds.

Figure 10: Unattractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 11 presents the data charted in Figure 10.

Figure 11: Unattractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 12 presents a mapping of Very Unattractive funds by sector. The chart shows the number of Very Unattractive funds in each sector and the percentage of assets in each sector allocated to Very Unattractive-rated funds.

Figure 12: Very Unattractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

Figure 13 presents the data charted in Figure 12.

Figure 13: Very Unattractive ETFs & Mutual Funds by Sector

Image Source: New Constructs, LLC

Source: New Constructs, LLC and company filings

This article originally published on July 10, 2019.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride 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] This paper compares our analytics on a mega cap company to other major providers. The Appendix details exactly how we stack up.

DISCLOSURE: Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, sector or theme.


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

I, or a firm that employs me, am a holder of the following securities securities mentioned in this article : none

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