Sector Ratings for ETFs & Mutual Funds 1Q19
SECTOR RANKINGS 1/8/19
Sector Ratings for ETFs & Mutual Funds
At the beginning of the first quarter of 2019, the Consumer Non-cyclicals, Financials, and Basic Materials 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 Consumer Non-cyclicals and Financials sectors. These sectors house 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 technology1 empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund's holdings.2
Get the best fundamental research
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
Sector
Overall Rating
Real Estate Telecom Services Utilities Consumer Cyclicals Healthcare Industrials Energy Technology Basic Materials Financials Consumer Non-cyclicals
Source: New Constructs, LLC and company filings
Very Unattractive Unattractive Unattractive Neutral Neutral Neutral Neutral Neutral Attractive Attractive
Very Attractive
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.
Fidelity MSCI Consumer Staples Index ETF (FSTA) is the top rated Consumer Non-cyclicals fund. It gets our Very Attractive rating by allocating over 72% of its value to Attractive-or-better-rated stocks.
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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SECTOR RANKINGS 1/8/19
Rydex Series Real Estate Fund (RYREX) is the worst rated Real Estate fund. It gets our Very Unattractive rating by allocating over 59% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors annual costs of 8.39%. 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
% of Assets # of Funds
50%
40%
30%
20% 15%
10%
55
91 10%
321 43%
191 24%
300 236
200
100 7%
0% Very Attractive
Attractive
0 Neutral Unattractive Very
Unattractive
% of Assets # of Funds
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 12 times that of Very Attractive funds.
Figure 3: Predictive Rating Distribution Stats
# of ETFs & Funds
Very Attractive
Attractive
55
91
% of ETFs & Funds
6%
10%
% of TNA
15%
10%
Avg TAC
0.21%
0.41%
* Avg TAC = Weighted Average Total Annual Costs
Source: New Constructs, LLC and company filings
Neutral
321 36% 43% 0.40%
Unattractive
191 21% 24% 1.48%
Very Unattractive
236 26%
7% 2.61%
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.
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SECTOR RANKINGS 1/8/19
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
% of Assets
# of Funds
100%
16
14
80%
12
60%
10
8
40%
6
20%
4
2
0%
0
ConsBCaoNsnioTIscRneHF-neiceCcMdaTnhlayylaueanttlccsllEnoeehitilrsrcciicctcioaaaaaaoallgllltrsssssemye UEtilnietriegys
% of Assets # of Funds
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
Sector
% of Sector Assets
# of Very Attractive
Funds
Cons Non-cyclicals
94%
15
Financials
51%
14
Technology
38%
14
Industrials
2%
1
Real Estate
1%
3
Cons Cyclicals
0%
5
Basic Materials
0%
1
Healthcare
0%
2
Telecom
0%
0
Energy
0%
0
Utilities
0%
0
Source: New Constructs, LLC and company filings
% of Very Attractive Funds in
Sector 65% 19% 7% 2% 1% 15% 6% 2% 0% 0% 0%
Page 3 of 11
SECTOR RANKINGS 1/8/19
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
% of Assets
# of Funds
75%
36
32
28
50%
24
20
16
25%
12
8
4
0%
0
ConsBCaoNsnioTIscRneHF-neiceCcMdaTnhlayylauUeanEtttlccsllEinoelenhitiilrsrcceiiccttcioriaaaaaaoallglelgltrssssyssemye
% of Assets
Source: New Constructs, LLC and company filings
Figure 7 presents the data charted in Figure 6. Figure 7: Attractive ETFs & Mutual Funds by Sector
Sector
% of Sector Assets
Telecom Financials Healthcare Technology Cons Cyclicals Industrials Cons Non-cyclicals Basic Materials Real Estate Energy Utilities
Source: New Constructs, LLC and company filings
53% 42% 15% 10% 5% 5% 4% 1% 0% 0% 0%
# of Funds
# of Attractive
Funds 2 30 9 33 6 7 3 1 0 0 0
% of Attractive Funds in Sector
13% 40% 8% 17% 18% 15% 13% 6% 0% 0% 0%
Page 4 of 11
SECTOR RANKINGS 1/8/19
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
% of Assets
# of Funds
100%
150
75% 100
50%
50 25%
0%
0
ConsBCaoNsnioTIRscnHeF-eniecCcaMdTlnahylyauUeatnEttlccEsllinhoeelntiisilrrctcceicictioriaaaaaaoatllrglelglesssesyssmy
% of Assets # of Funds
Source: New Constructs, LLC and company filings
Figure 9 presents the data charted in Figure 8.
Figure 9: Neutral ETFs & Mutual Funds by Sector
Sector
% of Sector # of Neutral
Assets
Funds
Basic Materials
98%
15
Cons Cyclicals
94%
20
Industrials
92%
30
Energy
77%
39
Healthcare
68%
57
Utilities
56%
16
Technology
44%
105
Telecom
38%
6
Financials
7%
26
Cons Non-cyclicals
2%
5
Real Estate
0%
2
% of Neutral Funds in Sector 83% 61% 65% 34% 52% 34% 55% 38% 35% 22% 1%
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 75% of their assets in Unattractive-rated funds.
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