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Last Updated 6/30/2015 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. Our ETF ratings are bound to become a hot property, too, for a couple of simple reasons: 1. ETFs growing like wildfire. Not only are new ETFs being launched left and right, but lots of money is flowing out of stocks and traditional mutual funds straight into ETFs. In such a fast-changing environment, it s easy to be seduced by an ETF that sounds great on paper, but can t deliver the performance it promised. 2. Like any new trend, most of the money gravitates to a few big funds at the top (while hundreds of funds have relatively small amounts of capital). So the largest funds are most likely the ones you own, and therefore the sweet spot where independent ratings are most valuable. As you might expect, quality ratings of the best and worst ETFs are hard to come by. It s hard work to evaluate hundreds of funds and the folks who sell ETFs to the public don t have much interest in evaluations of their merchandise. We launched ETF Ratings to give you the truth about these funds, and the report you re reading now is a great place to see how our strategies can help you become a better ETF investor. This special bonus includes reports on 20 of the largest exchange-traded funds, equally divided between the 10 largest ETFs that earn a Buy rating and the 10 largest ETFs that merit a Sell rating based on our proprietary risk-adjusted return rankings. Let s get started! Ten Largest Buy-Rated ETFs The 10 ETFs below have attracted nearly half a trillion dollars of investor assets by providing a costeffective way to gain exposure to some of the best performing equities. These are the biggest Buyrated ETFs because investor money tends to flow into the funds that consistently out-perform time after time. If your portfolio mix is lacking a large fund that tracks one of the major indices, our list of the ten largest Buy-rated ETFs is a good place to start your due diligence. There is of course no guarantee that these funds won t lose money. 2
But you ll have lots of company if they do! Ten Largest Sell-Rated ETFs Our exclusive list of the ten largest Sell-rated ETFs reveals some popular sectors than have fallen out of favor and cost their investors serious money. Investors have risked nearly $130 billion in the funds on our current list and their hopes of a return to rampant inflation and the re-emergence of fast growing foreign markets have been disappointed. As you ll see, the following ten funds are widely held, so the chances are good that many investors are still holding onto these poor performers. If you are in the process of liquidating funds in order to make mandatory withdrawals from retirement accounts or just redoing your investment mix, this list highlights major funds that should be considered first for the chopping block. 3
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. 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. 4
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