The Financials sector ranks third out of the 11 sectors as detailed in our 2Q18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Financials sector ranked second. It gets our Neutral rating, which is based on an aggregation of ratings of 29 ETFs and 49 mutual funds in the Financials sector as of April 9, 2018. See a recap of our 1Q18 Sector Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 24 to 404). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Financials sector 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 And Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
PowerShares DWA Financial Momentum Portfolio (NASDAQ:PFI) 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 And 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
iShares US Financial Services (NYSE:IYG) is the top-rated Financials ETF and Fidelity Select Consumer Finance Port is the top-rated Financials mutual fund. Both earn a Very Attractive rating.
PowerShares KBW High Dividend Yield Financial (NASDAQ:KBWD) is the worst rated Financials ETF and Rydex Series Banking Fund (RYBKX) is the worst rated Financials mutual fund. KBWD earns an Unattractive rating and RYBKX earns a Very Unattractive rating.
433 stocks of the 3000+ we cover are classified as Financials stocks.
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 Financials ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst ETFs
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds
Sources: New Constructs, LLC and company filings
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.