Kyle Guske II, senior investment analyst at New Constructs, puts the Columbia Select Mid Cap Value Fund in the Danger Zone on Money Life, arguing that a portfolio built from book-to-price and EBITDA-to-enterprise-value screens ends up owning stocks his firm rates very unattractive, at a valuation that already prices in the run-up. Chuck Jaffe pushes him on the fund's four-star Morningstar rating, on a year that is up almost 30%, and on what an investor is actually buying today.
👤 Guest: Kyle Guske II, senior investment analyst at New Constructs, the research firm that rates every holding in every fund it covers from most attractive to most dangerous
🎙️ Host: Chuck Jaffe, the veteran financial journalist who hosts Money Life
📰 Published: 31 August 2026 on YouTube (Money Life with Chuck Jaffe)
🔴 YouTube | 🟣 Apple Podcasts | 🔗 Episode page | ⏱️ 1 hr 1 min
Key Takeaways
The rating starts with the holdings, not the fund, and the holdings come out very unattractive
"In this case, CMUAX gets our very unattractive rating."
The conflict with a four-star Morningstar rating is what made the firm look harder, not what made it back off
The screen is the defect: every metric the fund selects on is built from adjustable accounting figures
Book to price, EBITDA to enterprise value and price to earnings — "All of those are ratios that we kind of shun in all of our analysis because they're all based on GAAP numbers that can be adjusted, managed, sometimes significantly to present a better picture"
A flawed screen produces a low-quality portfolio, and the fees are charged on top of it
"And then you add in the fees at the end of it, and you're getting worse risk-reward than even the S&P 500 or its benchmark, and you're paying more to do so."
The ratings are forward-looking, so a strong year is a cost rather than a credit
"And so, we would say, the whole past performance is not guarantee of future performance."
The gains show up as valuation: "And when we look at that, we see that they're trading at a price to economic book value of 4.5."
The holdings are less profitable than the benchmark and than the market, on his firm's own measure
"The overall holdings—the ROIC of the mutual fund is 8% where the benchmark's 11, the S&P is 36%."
An investor buying today is buying somebody else's accumulated risk, the way a fund buyer inherits somebody else's capital gains
Jaffe's analogy, which Guske accepted: the danger has been building in the portfolio and the new buyer picks up the bill
The A-share cost is not the expense ratio, because the front-end load is inside the number his firm uses
"CMUAX's total annual cost is 4.04% which is higher than 97% of midcap value funds under our coverage universe."
The mid-cap style rates attractive; this fund does not, and its holdings are no longer really mid-caps
"There's something like six or seven companies that would fit that market cap."
What the Danger Zone Is, and How the Rating Gets Made
Jaffe set up the segment with his usual explainer, and it matters here because the whole disagreement is about method. New Constructs, he said, brings together discounted cash flow analysis and forensic accounting with a little AI, digs in at the footnotes level and works up from there, looking for places where the surface is misleading. Securities come out on a scale from most attractive to most dangerous. Where a misleading surface creates an opportunity that is attractive; the Danger Zone is the other direction — the thing that looks fine until somebody reads the notes.
The fund ratings are built bottom-up from the holdings. "We don't like it for a few reasons. One starts with the actual holdings of the mutual fund u which is what all of our mutual fund ratings are based on."
"So we look at the entire universe of mutual funds. We analyze each holding in every fund." — and then aggregate to a single rating for the fund
"In this case, CMUAX gets our very unattractive rating."
A rating that clashes with the consensus is the trigger to dig, not to reconsider. "And when we find something like that, we want to dig in deeper and say, okay, what's going on beneath the surface because obviously our initial analysis is not looking great", he said, and pointed at the four-star Morningstar rating as exactly the sort of contrast that prompts a second pass
The Screen Is the Defect: Every Metric the Fund Selects On Runs Through Adjustable Accounting
"And so, we look at this one and take a look closer look at, okay, how are they picking stocks?" The answer is a value screen of the standard kind: book to price, EBITDA to enterprise value, price to earnings
"All of those are ratios that we kind of shun in all of our analysis because they're all based on GAAP numbers that can be adjusted, managed, sometimes significantly to present a better picture" — which, he said, can make a company look either more profitable or more undervalued than it is
The consequence is mechanical. "And so the methodology starts with flawed metrics, which then leads to a portfolio that overwhelmingly finds very few attractive or very attractive stocks and a whole bunch of unattractive and very unattractive stocks, to create a low-quality portfolio."
"And then you add in the fees at the end of it, and you're getting worse risk-reward than even the S&P 500 or its benchmark, and you're paying more to do so."
Morningstar Rates the Process Above Average, and the Fund Is Up Almost 30%
Jaffe made the case against his own guest before asking him to answer it, which is the useful part of the segment. He noted that a Morningstar analyst covering the fund's approach has called it well executed and reasonable, and rated its process above average — the opposite of the reading Guske had just given. He then added the harder fact: "So, this is a fund that year to date up not quite 30%."
His question was what the counterfactual actually looks like — how much better the fund could have done with a process New Constructs would endorse, given that, as the firm has always said, a dangerous rating does not mean a company is about to tank
Guske would not answer it, and said why. "And so, we would say, the whole past performance is not guarantee of future performance." The firm's ratings look forward and do not read the record: they are a view on what the fund does next
The strong year is not disputed. "And so in this case, yes, it's up big this year." and "I think it's been up big past couple years."
"And that shows up in the valuation of all the stocks." — which is where the argument goes next
The Run-Up Is Now Sitting in the Valuation
The firm aggregates the underlying stock ratings into one valuation reading for the fund. "And when we look at that, we see that they're trading at a price to economic book value of 4.5."
What that multiple means in his terms: "So essentially, the underlying holdings are trading at four and a half times higher than their no-growth value."
The other reading is how long the market is giving these companies to earn above their cost of capital. "You've got a market implied growth appreciation period, you know, how long the companies have to grow ROIC greater than WACC of 58 years." Both readings, he said, are above the benchmark
And the profitability behind the price is lower, not higher. "The overall holdings—the ROIC of the mutual fund is 8% where the benchmark's 11, the S&P is 36%."
"And so you're taking on increased valuation risk for less profitable companies." — which he called a recipe for underperformance going forward, before the fees are counted
Buying Someone Else's Risk, the Way a Fund Buyer Inherits Someone Else's Capital Gains
Jaffe offered the analogy and it is the clearest thing in the segment. A fund investor who buys after a long run can end up paying tax on gains somebody else earned, because the unrealized gains come with the shares. What Guske is describing, he suggested, is the same trade in risk: you are buying the position of an investor who won in spite of the danger, and the danger is still in the portfolio.
Guske accepted the framing. "And in this case you're taking on more valuation risk than the benchmark, less profitable companies."
He was careful not to turn it into a forecast. "Now, stocks could go up, it could do great over the next year." and "We've seen irrational movements in a whole bunch of companies, but it's worth quantifying: okay, how much valuation risk am I taking based on the profitability of the companies?"
The point of the exercise is disclosure rather than prediction. "And so it's just a situation where we want to flag, hey, you need to know what you're buying and in this case you're buying very unattractive rated stocks and you're paying a premium for those stocks"
The Cost Line: The Load Is Inside the Number, Which Is the Whole Argument
"Okay, we look at the expense ratios taking into account not just expense ratio but also any front-end backend loads, redemption fees and we've got a total annual cost metric."
"CMUAX's total annual cost is 4.04% which is higher than 97% of midcap value funds under our coverage universe."
Against the category, on the same measure: "The simple weighted average is 1.8%." and "The asset weighted average is 1.49."
Jaffe raised the standard objection to the metric himself: the load is not the fund's money, it goes to the adviser selling the shares — but he said it is still a real cost to the investor, and that at an expense ratio of about 1.1 the fund cannot be called cheap on any reading
The comparison Guske drew was against the index substitute, the benchmark exchange-traded fund an investor could hold instead. "That's a situation where you're paying significant costs above an easy replacement or an easy substitute."
When the Mid-Cap Rally Stops, the Holdings Are Not Really Mid-Caps Any More
Jaffe's last question came with a joke at the firm's expense — nobody at New Constructs has a working crystal ball, and their repair guy has never fixed it for David Trainer or for Guske — and then the substance: small and mid caps have rallied, so does this end with the tide going out?
The style is not the problem; the fund is. "We've seen the overall midcap style in our rating system gets an attractive rating." and "So this is something that's actually hidden beneath the surface, which is where that second level analysis goes."
The portfolio has outgrown its own category. "We look at the overall holdings, you've got the traditional midcap being 2 to 10 billion." — against which "There's something like six or seven companies that would fit that market cap."
What would start it is a small move in a few large positions. With that much valuation risk priced in, he said, it takes only a few of the big names coming back a little, whether that is an AI trade or something adjacent to it, and some of the consumer cyclical names may not do as well either
"So it's a scenario where yes, there's been some run-up, and we would expect that to come back, just because the fundamentals don't support the valuation."
Jaffe's closing clarification was that the rating is not an A-share quirk. The A shares get the very unattractive rating; the sister share classes, all four stars at Morningstar, get unattractive ratings
Guske's bottom line is that a value screen built on reported accounting figures has left this fund holding less profitable companies at a higher valuation than its own benchmark, and that the buyer pays a premium for that portfolio on top of a cost that ranks near the top of the category.
Products, Companies & Tools Mentioned
Columbia Select Mid Cap Value Fund (The Danger Zone pick, ticker CMUAX in the A shares; up almost 30% year to date, rated very unattractive on the A shares and unattractive across the sister classes)
New Constructs (Guske's firm — discounted cash flow analysis and forensic accounting read up from the footnotes, rating every holding in every fund it covers; David Trainer is its president and founder)
Morningstar (The four-star rating on the fund, and the analyst view that its process is well executed and above average, which is the contrast the whole segment turns on)
iShares Russell Mid-Cap Value ETF (Ticker IWS, the fund's benchmark and the cheap substitute Guske measured its cost against)
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