9 ETFs Earn High Scores
Any exchange-traded fund (ETF) we recommend should have the same attributes we seek in our stock picks — high Quadrix® scores. We use Quadrix to evaluate fund portfolios based on their individual stock holdings. Quadrix’s predictive qualities provide a measure of confidence when evaluating an ETF’s total-return potential.
The table below lists nine ETFs with solid Quadrix underpinnings and strong relative returns. Common traits include:
• Solid and improving scores for Quadrix Overall and Value — the two most effective scores in our stock-rating system. All nine funds earn weighted-average Overall scores of at least 70 and Value scores above 50, with improvement in both scores over the past three months. Weighted averages are computed using Quadrix scores for each stock in a portfolio, weighting the scores based on the percentage of fund assets in each stock.
• Improved Quadrix exposure. Since October, all nine ETFs have seen an increase in the percentage of assets in stocks with Overall scores above 90, as well as above 80. All nine funds have fewer assets in stocks with Overall scores below 20 than they did three months ago.
• Strong performance. All nine ETFs have outperformed their peer group based on 12-month total return.
iShares FTSE 400 Social Index Fund ($41; DSI) invests in 400 companies with strong social, environmental, and corporate-governance records. The underlying index originated in 1990 and was first constructed using socially responsible factors. The fund, with a weighted-average Overall score of 74, is typically 90% invested in large-company stocks, with most of the rest in midcaps. The fund’s largest position is a 5% stake in Microsoft ($28; MSFT), and 30% of assets are in 10 stocks.
Rydex S&P MidCap 400 Pure Growth ($56; RFG) and Rydex S&P SmallCap 600 Pure Growth ($35; RZG) track S&P style indexes that weight stocks using three factors — three-year sales and earnings growth and 12-month share-price momentum. The midcap fund has 98 holdings and is nearly 27% invested in consumer discretionary stocks. The small-cap fund has 149 stocks and a 29% weighting in technology.
Unlike ETFs that track traditional market-capitalization-weighted indexes, the three WisdomTree offerings listed above mimic indexes that weight stocks based on earnings. Companies with greater earnings generally have larger weightings in the ETFs. WisdomTree Total Earnings ($38; EXT) contains nearly 1,100 stocks, with Exxon Mobil ($65; XOM) the largest position at 3.7% of assets. The fund earns a weighted-average Overall score of 74, and 45% of assets are in stocks with Overall scores above 80.