The Large Cap Blend style ranks second out of the twelve fund styles as detailed in our 4Q15 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Large Cap Blend style ranked second as well. It gets our Attractive rating, which is based on aggregation of ratings of 21 ETFs in the Large Cap Blend style as of October 21, 2015. See a recap of our 3Q15 Style Ratings here.
Figures 1 shows the five best and worst-rated ETFs. Not all Large Cap Blend style ETFs are created the same. The number of holdings varies widely (from 19 to 1396). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Large Cap Blend style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
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
Arrow QVM Equity Factor (QVM) and First Trust High Income ETF (FTHI) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
Sources: New Constructs, LLC and company filings
ProShares UltraPro Dow30 ETF (UDOW) is the top-rated Large Cap Blend ETF and earns a very attractive rating.
Ark Innovation ETF (ARKK) is the worst-rated Large Cap Blend ETF and earns a very dangerous rating.
Stratasys (SSYS: $23/share) is one of our least favorite stocks held by ARKK and earns our Dangerous rating. Since Stratasys went public in 2012, its NOPAT has fallen from $19 million to -$33 million. In addition to falling profits, Stratasys currently earns a bottom quintile -9% ROIC, which is down from 1% in 2012. Despite the stock being down almost 80% from its record high, Stratasys shares could fall even further as the expectations baked into the stock price remain unrealistic. To justify the current price of $23/share, Stratasys must immediately achieve 1% pre-tax margins (-40% in 2014) and grow revenues by 27% compounded annually for the next 16 years. Investors would be wise to steer clear of SSYS.
Figures 3 shows the rating landscape of all Large Cap Blend ETFs.
Figure 3: Separating the Best ETFs From the Worst ETFs
Sources: New Constructs, LLC and company filings
Disclosure: David Trainer and Thaxston McKee receive no compensation to write about any specific stock, style, or theme.