Selecting the right U.S. Size & Style funds requires moving beyond simple category labels. While “Growth” or “Small Cap” provides a starting point, the true drivers of a fund’s risk and return are hidden within its underlying data.
To build a portfolio that aligns with your specific macro assumptions and investment goals, evaluation is best approached through three lenses: Exposure (what you own), Fundamentals (what you are paying), and Risk & Return (how it behaves).
1. Exposure Analysis: Deconstructing Structural Risk
Performance is rarely driven by “style” in a vacuum. It is usually the result of structural bets on specific sectors, industries, or individual stocks. Before allocating, you need to determine if a fund’s exposures align with your macro view.
Sector & Industry Tilts
Style tilts almost always create sector imbalances. For example, “Growth” often implies a heavy Technology weight, while “Value” often leans into Financials or Energy.
- The Quick Check (Derived): Use the Equity – Sector Concentration Rating. This proprietary rating (Scale: Low to High) measures diversification based on the aggregate weight of the top three GICS sectors. A “High” rating instantly flags a fund that is heavily dependent on a specific corner of the economy.
- The Deep Dive (Actual): Analyze the GICS Sector Allocation. If you are bearish on Tech, a “Large Cap Growth” fund with a 45% Tech weighting creates a macro headwind you need to be aware of. Dig further into Industry Groups (e.g., Semiconductors vs. Software) to spot granular risks.
Concentration & Overlap
Is the fund a diversified basket or a concentrated bet?
- The Quick Check (Derived): Check the Equity – Stock Concentration Rating. Calculated based on the aggregate weight of the top ten holdings, this rating (Scale: Low to High) provides an objective measure of idiosyncratic risk. A “High” rating (>60% in top 10) suggests the fund’s fortune is tied to a handful of names.
- The Deep Dive (Actual): Review the Top 10 Holdings weight manually. Crucially, run an Overlap Analysis against your existing portfolio to ensure you aren’t unintentionally doubling down on the same few mega-cap names (e.g., owning NVIDIA in both your “Growth” and “Momentum” funds).
2. Fundamentals: The Truth-Testing Mechanism
Once you understand the exposure, fundamentals provide the validation. This step confirms whether the portfolio’s characteristics actually match the label on the box and your investment thesis.
Valuating the “Idea”
If you are buying “Value,” are you actually getting cheap stocks? If you are buying “Growth,” are the companies actually growing?
- The Quick Check (Derived): Use Factor Ratings & Tilts. These proprietary metrics score funds on a 0-5 scale (Low to High) relative to a broad global benchmark (MSCI ACWI IMI). This provides a universal standard for “purity.”
- Example: If comparing two Value ETFs, one might have a Value Tilt Rating of “5 – High” while the other is “3 – Average.” The former is the “deeper” value strategy, regardless of what the fund name says.
- The Deep Dive (Actual): Compare aggregate Valuation Ratios (P/E, P/B, P/S) against the category average. A “Small Value” fund trading at a higher P/E than the Russell 2000 Value index may signal style drift or an overvalued portfolio.
Quality & Financial Health
Does the fund own profitable companies, or speculative ones?
- The Quick Check (Derived): Look at the Quality Tilt Rating. A “High” rating indicates a portfolio heavily weighted toward companies with robust profitability (High ROE) and low leverage (Low Debt/Equity) relative to the global opportunity set.
- The Deep Dive (Actual): Scrutinize Return on Equity (ROE) and Return on Invested Capital (ROIC). High ROE/ROIC confirms the underlying companies have strong competitive moats. For dividend funds, check the Payout Ratio—a high yield with an unsustainable payout ratio is a classic “value trap.”
3. Risk & Return: The Behavioral Reality Check
While the previous pillars analyze the “inputs,” the track record reveals the “outputs.” However, total return is a noisy metric. You must analyze how the returns were achieved to determine if the fund is reliable.
Contextual Benchmarking
Comparing a Small Cap Value fund to the S&P 500 is often misleading.
- The Metric: Always measure a fund against its specific Beta Tracker or Category (e.g., Russell 2000 Value for small-value funds) rather than a generic market index.
- The Goal: Identify if underperformance is due to the manager’s poor selection (lagging the specific benchmark) or simply because the style itself is out of favor (lagging the broad market).
Stress Testing the Strategy
How does the fund handle market stress?
- Capture Ratios: Analyze Up/Down Capture. A “Low Volatility” fund should have a significantly lower Down Capture (<80%). If it captures 100% of the downside, the strategy is failing its primary mandate.
- Max Drawdown: Check the depth of historical declines. If a fund claims to offer “downside protection” but historically falls just as hard as the market, the claim is marketing, not reality.
4. Advanced Application: Multi-Factor Nuance
The most powerful way to use these datasets is to look for the intersection of factors. However, this requires understanding which factors complement each other and which are naturally opposed.
The “And” Query: Solving for Weaknesses
Investors can use secondary factors to mitigate the inherent weaknesses of a primary style. A classic example is the “Value Trap”—buying cheap stocks that are cheap because their businesses are failing.
- The Use Case: Filter for Equity – Style Assignment = Value, then sort by Momentum Tilt Rating.
- The Logic: You are looking for cheap stocks (Value) that are already beginning to see price appreciation (Momentum). This helps avoid “catching a falling knife” and identifies value plays that the market is starting to recognize.
The “Oil & Water” Reality (Factor Trade-offs)
Some factors naturally conflict. Deep Value (distressed prices) rarely overlaps with High Quality (pristine balance sheets). High Growth (expensive expectations) rarely overlaps with Low Volatility.
- The Reality: You will rarely find a “Unicorn” fund with a “5 – High” rating in both Value and Quality. Like oil and water, these characteristics tend to separate.
- The Strategy (Relative Superiority): The goal isn’t to find the impossible; it’s to find the best available option within the constraint.
- Example: When shopping for Deep Value, you aren’t looking for “High Quality” (which likely doesn’t exist in the bargain bin). You are looking for “Average” Quality instead of “Low.” Finding a Value fund with a Quality Tilt of “3” is a significant “relative win” over a peer with a Quality Tilt of “1,” even if neither is a “Quality” fund by definition.
5. Popping the Hood: Single Stock Granularity
Sometimes, aggregate data isn’t enough. To truly understand a fund, you need to see the companies inside it. ETF Action’s Portfolio Visualizer allows you to research every holding within an ETF using the same powerful FactSet datasets available at the fund level.
- The Micro-View: Drill down from the fund level to the individual ticker level. If a “Quality” fund has a lower-than-expected ROE, you can sort the holdings by ROE to identify the specific culprits dragging down the average.
- Confirming the Narrative: Use company-level data to verify the “story” behind the metrics.
- Example: A “Growth” fund might show high aggregate earnings growth. By popping the hood, you can confirm if this is broad-based across the portfolio or driven by a massive weight in just two or three hyper-growth stocks.
- Earnings & Estimates: Access forward-looking estimates and recent earnings data for every constituent, allowing you to build a bottom-up view of the fund’s future potential.
Beyond the Primer: Institutional-Grade Data & Support
This primer provides a foundational guide for utilizing the specific datasets relevant to Size & Style evaluation, but it represents only a fraction of the analytical power available on the ETF Action platform.
- Powered by FactSet: Our platform is built on an expansive library of institutional-grade data sourced directly from industry leader FactSet. While this guide highlights key metrics, subscribers have access to thousands of additional data points, global equity analytics, and deep fixed income statistics to support even the most complex due diligence.
- We Are Your Resource: The ETF Action team is here to help you navigate this depth. Whether you need to schedule a platform demo, have specific questions about a dataset, or want to explore custom use cases for your practice, we are happy to assist.