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Last Updated 6/30/2015 Ten Best ETFs to Buy and Ten Worst to Sell Welcome the TheStreet s ETF Ratings! We re so glad to have you on board and want to do our best to help you be a success. All of TheStreet s Ratings services have the same goal: To help you make better investment decisions by giving you independent, completely objective evaluations of stocks, Exchange Traded Funds and closed-end mutual funds. As you might expect, our stock ratings have been wildly popular, thanks to their combination of comprehensiveness and accuracy. Now, we re expanding our reach. ETFs are one of the fastest-growing investments in history, and quality ratings of the best and worst are hard to come by. Disappointed and frustrated investors who are unhappy with the performance of their managed mutual funds have turned to ETFs in droves, attracted by their low costs, easy trading and more flavors than Heinz or Baskin Robbins combined. But which should you own? Almost every ETF sounds great on paper, but there s a big difference between good marketing and sound performance. You know you can t just rely on past performance (it really isn t a guarantee of future performance), so how do you pick between the dozens of large cap stock funds or technology funds or any other subsector of the ETF universe? We launched ETF Ratings to answer just those questions, and the report you re reading now is a great place to start. This special bonus includes reports on 20 exchange-traded funds (or ETFs) equally divided between the 10 best ETFs that earned an A+ Buy rating and the 10 worst ETFs that merit an E- Sell rating based on our proprietary risk-adjusted return rankings. Ten Best Buy-Rated ETFs Much of succeeding in life is being in the right place at the right time. That s true of investing as well, as shown by our top ten list. Some of the 10 best rated ETFs target specific industries including pharmaceuticals, healthcare, transportation, and insurance that have healthy tailwinds at their back. ETFs provide a cost-effective way to gain exposure to some of the best performing equities in these top industries, so these funds might be good additions to your portfolio. While it is usually a bad idea to have too much of your nest egg in any one niche fund, our list of the ten best Buy-rated ETFs is a good place to start researching great funds that are well-positioned for solid future returns. 2
There is no guarantee that these funds won t lose money. However, you have to step up to the plate if you ever want to hit home runs. Of course, the risk of going for home runs is striking out. Even Babe Ruth struck out sometimes he racked up1330 strikeouts to generate 714 home runs. Just like in baseball, with investing the value of a lesser number of home runs can exceed the cost of a greater number strike outs if you can let your winners run and cut your losers short. Which is the perfect segue to the Ten Worst Sell-Rated ETFs Our list of the ten lowest-rated ETFs reveals the risk of utilizing leverage. When the market moves against your bets, you can lose a lot in a very short period of time. That s definitely the case with the funds that dominate our bottom ten list. Almost all of them are either bear market funds that go up when the general market goes down, leveraged funds, or both. In a flat or bullish market, all of them can cost you a bundle! As a general rule, leverage ETFs are more suited to short term speculation than long-term holdings, 3
so even these funds may be useful for a handful of skillful traders, but most investors should steer a wide path around them. If you want to improve your investment results, you can do yourself as much good by dumping bad funds as by buying good funds. This list highlights a few funds that should be considered first for the cutting from the team. There s a lot packed into our full reports, so you ll definitely want to check out the following section. Key Elements of TheStreet Investment Rating Reports TheStreet Investment Ratings represent a completely independent, unbiased opinion of a mutual fund s historical risk-adjusted performance. This can be found on our ETF reports at the top of the left-hand column of page 1 showing the overall Investment Rating which combines each fund s Performance grade and Risk grade. A fund s Performance Rating is based on its total return to shareholders over a period of up to three years, including share price appreciation and distributions to shareholders. This total return figure is reviewed net of the expenses and fees charged by the fund. 4
This adjusted return is then weighted to give more recent performance a slightly greater emphasis. Thus, two mutual funds may have provided identical returns to their shareholders over the last three years, but the one with the better performance in the last 12 months will receive a slightly higher performance rating. The Risk Rating is based on the level of volatility in the fund s monthly returns, also over a period of up to three years. We use several statistical measures standard deviation, semi-deviation and a drawdown factor as our barometers of volatility. Funds with more volatility relative to other mutual funds are considered riskier, and thus receive a lower risk rating. By contrast, funds with very stable returns are considered less risky and receive a higher risk rating. Breakouts of Performance At-A-Glance and Risk At-A-Glance are found on page 3 of our ETF reports. Rarely will you ever find a mutual fund that has both a very high Performance Rating plus, at the same time, a very high Risk Rating. Therefore, the funds that receive the highest overall Investment Ratings are those that attain the ideal combination of both primary components. There is always a tradeoff between risk and reward. Funds are only as good as their holdings. On page 2 of our ETF reports, you will find a breakdown of the largest holdings disclosed by the fund plus the allocation of all holdings by investment sector. Also, on the same page, smaller but higher ranked funds of the same investment objective are listed for your consideration. Finally, on page 4 of our ETF reports, you will see the fund s rating history, an important disclaimer, and definitions of our ratings. The next step is up to you. Conclusion The lists in this report are a great starting place to improve your investment results, but every investor needs to weigh his own investing style, risk tolerance and expectation of return to make the right choices. Good luck, and be sure to check in to TheStreet Ratings website regularly to make sure you re focused on the best ETFs to own. Our ratings change every month as performance, market conditions and dozens of other variables shift, so stay on your toes! 5