Small Cap Value Style 3Q18: Best and Worst

David Trainer  |


The Small Cap Value style ranks eleventh out of the twelve fund styles as detailed in our 3Q18 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Small Cap Value style ranked last. It gets our Unattractive rating, which is based on an aggregation of ratings of 19 ETFs and 242 mutual funds in the Small Cap Value style. See a recap of our 2Q18 Style Ratings here.

Figures 1 and 2 show the best and worst rated ETFs and mutual funds in the style. Not all Small Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 24 to 1485). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Small Cap Value style should buy one of the Attractive-or-better rated mutual funds from Figure 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

Legg Mason Small Cap Quality Value ETF (SQLV) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

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

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

Sources: New Constructs, LLC and company filings

Vanguard Small Cap Value Index Fund (VBR) is the top-rated Small Cap Value ETF and Royce Small Cap Value Fund (RVVHX) is the top-rated Small Cap Value mutual fund. VBR earns a Neutral rating and RVVHX earns a Very Attractive rating.

Invesco S&P Small Cap 600 Pure Value ETF (RZV) is the worst rated Small Cap Value ETF and PACE Small/Medium Value Equity Investments (PEVAX) is the worst rated Small Cap Value mutual fund. RZV earns an Unattractive rating and PEVAX earns a Very Unattractive rating.

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 Small Cap Value ETFs and mutual funds.

Figure 3: Separating the Best ETFs from the Worst Funds

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds from the Worst Funds

Sources: New Constructs, LLC and company filings

This article originally published on July 24, 2018.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, 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: Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, 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

Companies

Symbol Name Price Change % Volume
DES WisdomTree U.S. SmallCap Dividend Fund 27.83 0.03 0.11 164,571
SMLV SPDR SSGA US Small Cap Low Volatility Index 90.91 -0.18 -0.20 3,583
VBR Vanguard Small-Cap Value 128.75 -0.72 -0.56 443,474

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