In this edition of The Dividend Wealth Journal, David Trainer dives into the often-overlooked complexities of style ETFs, revealing how to pinpoint the best options while avoiding potential portfolio pitfalls. | 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! | | Not All ETFs Are Equal — Here's How to Choose Wisely | Not All ETFs Are Equal — Here’s How to Choose Wisely | David Trainer here.
With the ETF market growing more crowded by the day, choosing the right one can feel like finding a needle in a haystack.
For dividend-focused investors like you, the stakes are even higher — you want funds that provide stability and growth without sacrificing quality.
That’s why understanding what’s under the hood of an ETF is critical.
Today I’m revealing my approach to cutting through the noise to identify the best ETFs across different styles.
Even if ETFs aren’t your main focus, knowing how to evaluate them can help you make smarter decisions, whether you’re looking to diversify your dividend portfolio or avoid potential pitfalls.
Let’s dive into the data and see how my approach methods can sharpen your investment edge.
— David Trainer
| Don’t Trust ETF Labels
There are at least 196 different All Cap Blend ETFs and at least 789 ETFs across twelve styles. Do investors need 65+ choices on average per style? How different can the ETFs be?
Those 196 All Cap Blend ETFs are very different from each other. With anywhere from 6 to 3,790 holdings, many of these All Cap Blend ETFs have drastically different portfolios with differing risk profiles and performance outlooks.
The same is true for the ETFs in any other style, as each offers a very different mix of good and bad stocks. All Cap Value ranks first for stock selection. Small Cap Growth ranks last. Details on the Best & Worst ETFs in each style are here.
Avoiding Analysis Paralysis
We think the large number of style ETFs hurts investors more than it helps. Manually conducting a deep analysis for every ETF is simply not a realistic option, exposing investors to insufficient analysis and missing profitable opportunities. Analyzing ETFs, with the proper diligence[1], is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, there can be as many as 3,790 stocks or more, for one ETF.
Anyone focused on fulfilling the fiduciary duty of care recognizes that analyzing the holdings[2] of an ETF is critical to finding the best ETF. More reliable & proprietary fundamental data, proven in The Journal of Financial Economics, drives our research and analysis of ETF holdings and provides investors with a new source of alpha.
Figure 1 shows our top-rated ETF for each style.
| Amongst the ETFs in Figure 1, Euclidean Fundamental Value ETF (ECML) ranks first overall, Alpha Architect U.S. Quantitative Value ETF (QVAL) ranks second, and ETC 6 Meridian Mega Cap Equity ETF (SIXA) ranks third. iShares Core S&P U.S. growth ETF (IUSG) ranks last.
How to Avoid “The Danger Within”
Why do you need to know the holdings of ETFs before you buy?
You need to be sure you do not buy an ETF that might blow up. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the ETF’s performance will be bad. Don’t just take my word for it, see what Barron’s says on this matter.
PERFORMANCE OF FUND’S HOLDINGS – FEES = 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.
If Only Investors Could Find Funds Rated by Their Holdings
Our ETF ratings leverage our stock coverage. We rate ETFs based on the aggregated ratings of the stocks each ETF holds.
Euclidean Fundamental Value ETF (ECML) is not only the top-rated All Cap Value ETF but is also the overall top-ranked style ETF out of the 812 style ETFs that we cover.
The worst ETF in Figure 1 is Vanguard Growth Index Fund ETF Class Shares (VUG), which gets an Attractive rating.
| For dividend investors, the goal is always to find high-quality income opportunities while minimizing unnecessary risk.
I hope that I’ve shown you that not all ETFs are created equal — and that a little due diligence goes a long way in protecting and growing your portfolio.
Whether you’re researching ETFs to complement your dividend holdings or exploring new ways to optimize your returns, understanding the quality of an ETF’s underlying holdings is a skill worth mastering.
Take a moment to review the list of top-rated ETFs shared in this piece, especially those that align with your goals.
And if you want to go even deeper, check out the links provided to learn more about concepts like NOPAT and ROIC — tools that can guide you toward smarter, more informed decisions.
— David Trainer
P.S. Jack Carter’s sharing 3 stocks that he believes are primed to shoot higher. Click here to reserve your spot!
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