Large Cap Growth Style 2Q19: Best and Worst

The Large Cap Growth style ranks sixth out of the twelve fund styles as detailed in our 2Q19 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Growth style ranked fifth. It gets our Neutral rating, which is based on an aggregation of ratings of 25 ETFs and 662 mutual funds in the Large Cap Growth style as of April 23, 2019. See a recap of our 1Q19 Style Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all Large Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 576). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Large Cap Growth style 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

Six ETFs (VSDA, QQAL, JQUA, BERN, NULG, SYG) 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 – Top 5

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

Sources: New Constructs, LLC and company filings

Alta Quality Growth Fund (AQLGX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

VictoryShares U.S. Large Cap High Dividend Volatility Weighted Index ETF (CDL) is the top-rated Large Cap Growth ETF and Fidelity SAI U.S. Quality Index Fund (FUQIX) is the top-rated Large Cap Growth mutual fund. CDL earns an Attractive rating and FUQIX earns a Very Attractive rating.

State Street Icy Focused Growth NextShares (IVFGC) is the worst rated Large Cap Growth ETF and Pace Large Company Growth Equity Investments (PLAAX) is the worst rated Large Cap Growth mutual fund. IVFGC earns a Neutral rating and PLAAX 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 Large Cap Growth 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 April 23, 2019.