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Diligence Institute

Highlights From New Constructs Investment Research

Danger Zone 6/24/13: REITs

REITvUtilities

Even with this recent price drop, the current valuations of REITs look disconnected from their fundamentals.

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Danger Zone 12/24/2012: Schwab U.S. REIT (SCHH)

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One of the best examples of an ETF with low costs but poor holdings is Schwab US REIT (SCHH).

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How To Avoid the Worst Sector ETFs

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Why are there so many ETFs? The answer is: because ETF providers are making lots of money selling them. The number of ETFs has little to do with serving investors’ best interests. Here are three red flags investors can use to avoid the worst ETFs…

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Best & Worst ETFs and Mutual Funds: Large Cap Blend Style

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The Large Cap Blend style ranks first out of the twelve fund styles as detailed in my style rankings for ETFs and mutual funds. It gets my Neutral rating, which is based on aggregation of ratings of 39 ETFs and 1,046 mutual funds in the Large Cap Blend style as of October 12, 2012.

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Sector Rankings For ETFs & Mutual Funds

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At the outset of the fourth quarter of 2012, only a single sector earns an attractive rating. My sector ratings are based on the aggregation of my fund ratings for every ETF and mutual fund in each sector.

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I Hate the Guts of This ETF: Sell URE

I Hate the Guts of This ETF: Sell URE

The guts of an ETF are its holdings. And an ETF’s guts are what drive my ETF ratings. As highlighted in Barron’s, the only truly diligent assessment of an ETF is based on its holdings.
Research on an ETF’s holdings is important because an ETF’s performance is only as good as its holdings. Therefore, if you care about performance, you care about the ETF’s holdings.

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Best & Worst ETFs & Mutual Funds: Financials Sector

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The Financials sector ranks last out of the ten sectors as detailed in my sector roadmap. It is the only sector to earn my Very Dangerous rating, which is based on aggregation of ratings of 48 ETFs and 224 mutual funds in the Financials sector as of April 18, 2012.

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Roadmap to the Best & Worst Sectors for Funds 2Q12

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Only one sector, Consumer Staples, earns my Attractive rating. See Figure 1 for my ranking of all ten sectors. My sector ratings are based on the aggregation of my fund ratings for every ETF and mutual fund in each each sector.

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How To Avoid the Worst ETFs

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From the start, avoid any ETFs below a $100 million market cap. Anything smaller puts you at risk of inadequate liquidity, too large a bid/ask spread and tracking error. Even $100 million can be too low. The bigger the market cap the less trading risk. There are plenty of free services that allow you to screen out the smaller ETFs and minimize your trading risk.
The focus of this article, however, is investing risk or the relative investment potential of the ETF.

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