The Industrials sector ranks seventh out of the 11 sectors as detailed in our 2Q19 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Industrials sector ranked sixth. It gets our Neutral rating, which is based on an aggregation of ratings of the 426 stocks in the Industrials sector as of April 11, 2019. See a recap of our 1Q19 Sector Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Industrials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 349). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Industrials 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 & Worst Ratings - Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Three ETFs (US Global Jets (NYSE:JETS), John Hancock Multifactor Industrials (NYSE:JHMI), First Trust Nasdaq Transportation (NASDAQ:FTXR)) 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
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
iShares US Home Construction (NYSE:ITB) is the top-rated Industrials ETF and Fidelity® Select Envir And Alt Energy Portfolio is the top-rated Industrials mutual fund. ITB earns a Very Attractive rating and FSLEX earns an Attractive rating.
VanEck Vectors Environmental Services (NYSE:EVX) is the worst rated Industrials ETF and PGIAX is the worst Industrials mutual fund. They both earn a Very Unattractive rating.
426 stocks of the 2750+ we cover are classified as Industrials 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.
PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Figures 3 and 4 show the rating landscape of all Industrials 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, Peter Apockotos, and Kyle Guske receive no compensation to write about any specific stock, sector or theme.