At the beginning of the first quarter of 2016, only the Large Cap Blend style earns an Attractive-or-better rating. Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style.
Investors looking for style funds that hold quality stocks should look no further than the Large Cap Blend and Large Cap Value styles. These styles house the most Attractive-or-better 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.
See Figures 4 through 13 for a detailed breakdown of ratings distributions by investment style. See our ETF & mutual fund screener for rankings, ratings and reports on 6800+ 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 investment style are available here.
Figure 1: Ratings For All Investment Styles
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 rating.
Vulcan Value Partners Fund (VVPLX) is the top rated Large Cap Blend fund. It gets our Very Attractive rating by allocating over 61% of its value to Attractive-or-better-rated stocks.
Oracle Corporation (ORCL: $35/share has long been one of our favorite stocks held by VVPLX and earns a Very Attractive rating. Over the past decade, Oracle has grown after-tax profit (NOPAT) by 15% compounded annually. The company’s earns a top quintile 23% return on invested capital (ROIC). Oracle has grown into a cash machine, generating over $40.7 billion in free cash flow over the past five years. Unwarranted concerns about the company’s ability to adapt to new cloud technologies have created a great buying opportunity. At its current price of $35/share, ORCL earns a price-to-economic book value (PEBV) ratio of 0.9. This ratio means that the market expects Oracle’s NOPAT to permanently decline by 10% from current levels. If Oracle can instead grow NOPAT by just 5% compounded annually for the next decade, the stock is worth $57/share today – a 63% upside.
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