My ratings on ETFs are unique because they are based on my stock ratings for each of a fund’s holdings.

Analyzing and rating an ETF based on its holdings delivers many interesting insights:

  1. The size of the allocation to each holding is most important to the predictive rating of the ETF.
  2. The largest holdings are not reliable indicators of quality or investment merit.
  3. ETF labels/names are not reliable indicators of quality or investment merit.

Figures 1 and 2 prove these points.

First, note that none of the overall top-rated ETFs (in Figure 1), all of which get my Attractive fund rating, rank in the top 10 of the ETFs (in Figure 2) with the largest allocations to stocks in my monthly Most Attractive Stocks newsletter, which is ranked as one of the best model portfolios in the business by Barron’s...

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(Read more from David Trainer on his blog, The Intelligent Investor.)