In this edition of The Dividend Wealth Journal, David Trainer reveals the top-rated sector funds for 4Q24 and highlights the importance of combining quality holdings with low costs | | Don’t buy gold until you watch this exclusive presentation from commodities expert, Geof Smith. He tells us a major gold acceleration cycle is around the corner! |
| | | Sector Ratings for ETFs & Mutual Funds: 4Q24 | Sector Ratings for ETFs & Mutual Funds: 4Q24 | David Trainer here.
Finding the right sector ETFs and mutual funds can be a challenge in today’s crowded market. That’s why every quarter, I take a deep dive into the sector ratings for ETFs and mutual funds to identify the best opportunities for investors.
In this report, I break down the sectors with the highest-rated funds and reveal what drives those ratings. Using our proprietary Predictive Fund Rating System and the cutting-edge Robo-Analyst technology, we analyze over 6,300 mutual funds and 1,000 ETFs to uncover funds with the best combination of high-quality holdings and low fees.
Whether you're looking for funds in Energy, Consumer Non-cyclicals, Financials, or elsewhere, I’ll show you which funds make the cut — and which ones to avoid.
— David Trainer
| At the beginning of 4Q24, the Energy, Consumer Non-cyclicals, and Financials sectors each earn an Attractive-or-better rating. Our sector ratings are based on a normalized aggregation of our ratings for each stock in a given sector. Our stock ratings are based on five criteria that assess a company’s business fundamentals and valuation. See last quarter’s Sector Ratings here.
Investors looking for sector funds that hold quality stocks should focus on the Energy, Consumer Non-cyclicals, and Financials sectors. Figures 4 through 7 provide more details on the ratings of overall sectors, underlying assets, and individual funds. The primary drivers 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.
More reliable and proprietary fundamental data, proven in The Journal of Financial Economics, drives our research. Our Robo-Analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. Our Core Earnings and Earnings Distortion factor general novel alpha.
See Figures 4 through 13 for a detailed breakdown of ratings distributions by sector. See our ETF & mutual fund screener for rankings, ratings, and reports on 6,300+ mutual funds and 1,000+ ETFs. Our fund rating methodology is detailed here.
All of our reports on the best & worst ETFs and mutual funds in every sector are available here.
| 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 ratings.
iShares U.S. Oil & Gas Exploration % Production ETF (IEO) is one of the top rated Energy funds. It gets our Very Attractive rating by allocating over 53% of its value to Attractive-or-better-rated stocks.
Rydex Real Estate Fund (RYREX) is the worst rated Utilities fund. It gets our Very Unattractive rating by allocating over 97% of its value to Unattractive-or-worse-rated stocks. Making matters worse, it charges investors annual costs of 4.23%.
Figure 2 shows the distribution of our Predictive Ratings for all sector ETFs and mutual funds.
| Figure 3 offers additional details on the quality of the sector funds. Note that the average total annual cost of Very Unattractive funds is over three times that of Very Attractive funds. | This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs.
Ratings by Sector
Figure 4 presents a mapping of Very Attractive funds by sector. The chart shows the number of Very Attractive funds in each sector and the percentage of assets in each sector allocated Very Attractive-rated funds.
| Figure 5 presents the data charted in Figure 4. | Figure 6 presents a mapping of Attractive funds by sector. The chart shows the number of Attractive funds in each sector and the percentage of assets in each sector allocated to Attractive-rated funds. | Figure 7 presents the data charted in Figure 6. | Figure 8 presents a mapping of Neutral funds by sector. The chart shows the number of Neutral funds in each sector and the percentage of assets in each sector allocated to Neutral-rated funds. | Figure 9 presents the data charted in Figure 8. | Figure 10 presents a mapping of Unattractive funds by sector. The chart shows the number of Unattractive funds in each sector and the percentage of assets in each sector allocated to Unattractive-rated funds.
The landscape of sector ETFs and mutual funds is littered with Unattractive funds. Investors in Industrials have put over 24% of their assets in Unattractive-rated funds.
| Figure 11 presents the data charted in Figure 10. | This is a new Text block. Change the text.Figure 12 presents a mapping of Very Unattractive funds by sector. The chart shows the number of Very Unattractive funds in each sector and the percentage of assets in each sector allocated to Very Unattractive-rated funds. | Figure 13 presents the data charted in Figure 12. | Appendix: Predictive Fund Rating System
New Constructs’ Predictive fund Ratings enable smarter investing by assessing the key drivers of future fund performance. We start by analyzing every funds’ holdings based on New Constructs’ stock ratings, which are regularly featured as among the best by Barron’s. Next, we measure and rank the all-in fund expenses. Finally, we rank the fund compared to all other funds to identify the best and worst funds in the market.
Intuitively, there are two drivers for future fund performance.
1. Stock-picking (Portfolio Management Rating) and
2. Fund expenses (Total Annual Costs Rating) Our Predictive Fund Rating is based on these drivers and the fund’s ranking: 1. Top 10% = Very Attractive Rating
2. Next 20% = Attractive Rating
3. Next 40% = Neutral Rating
4. Next 20% = Unattractive Rating
5. Bottom 10% = Very Unattractive Rating
The figure below details the criteria that drive our Predictive Rating system for funds. The two drivers of our predictive ratings system are Portfolio Management and Total Annual Costs. The Portfolio Management ratings (detail here) is the same as our Stock Rating (detail here) except that we incorporate Asset Allocation (details here). The Total Annual Costs Ratings (details here) captures the all-in costs of being in a fund over a 3-year holding period, the average period for all mutual funds.
| Choosing the right funds isn’t just about chasing performance — it’s critical to understand the quality of what you’re buying.
This quarter’s sector ratings highlight why rigorous research and low costs are critical for long-term success.
The funds we’ve highlighted here exemplify the kind of smart investing decisions that can help you stay ahead of the market.
As always, I’m here to help you make smarter investment decisions.
Here’s to investing with confidence,
— David Trainer
P.S. Geof Smith’s Perfect Gold Trade snagged a solid win on this week’s strong gold surge. Learn more about how it works here.
| | | | Jack Carter has isolated a list of blue-chip stocks that have consistently spiked on the same dates for over a decade! | | |
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