Weakness in AI Powered Equity ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The management team doesn't personally invest much alongside shareholders. This is a large contributor to the strategy's Low People Pillar. The strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable overweight position in liquidity exposure and has a substantial underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's parent organization still has a way to go to reach the industry standard, evidenced by unsubstantial personal investments from portfolio managers and a cohort of unseasoned portfolio managers. As a result, the firm obtains a Low Parent Pillar rating, recently downgraded from Below Average.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. AI Powered Equity ETF earns a Low Process Pillar rating. 

The main detractor from the rating is the fund's unremarkable long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year risk-adjusted success ratio of 14% also holds the process back. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 22% limits the rating further.

 This strategy skews toward smaller, more undervalued companies than its average peer in the Large Growth Morningstar Category. Looking at additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets.  Lacking this ballast, the fund's prospects will rest on its ability to supersede peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in communication services and consumer defensive relative to the category average by 9.0 and 7.6 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 23.8 and 3.8 percentage points of assets, respectively. The strategy owns 111 securities and is diversified among those holdings. In its most recent portfolio, 35.6% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category’s 52.5% average. And finally, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Process

AI Powered Equity ETF earns a Low People Pillar rating. The most substantial detractor from the rating is the turnover of management across its parent firm. The firm's asset-weighted manager tenure of five years suggests it could do more to retain portfolio managers. The parent firm's subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 1.0 stars, also weakens the team. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis. The managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns, detracts from the rating as well.


The strategy is backed by Samuel R. Masucci, the longest-tenured manager, who has been a portfolio manager for six years. The strategies they currently manage have an average Morningstar Rating of 2.0 stars, demonstrating disappointing risk-adjusted performance compared with category peers. Despite having a small team, the two listed managers boast 15 years of portfolio management experience. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors. Management has provided stability, leading to a potential smooth transition of power, with similar manager retention to peers. However, the most recent documented departure was 10 months ago.

People

ETF Managers fails to meet industry-standard stewardship qualities, culminating in a Low Parent Pillar rating. None of the firm’s assets are covered by an invested manager. Team members’ investments are regarded as helping to encourage long-term thinking and align portfolio manager and investor interests. Only five years of average asset-weighted tenure among ETF Managers's longest-tenured managers gives us pause. In isolation, seasoned teams tend to have more experience to draw upon should they need to navigate turbulent market conditions. With an average five-year Morningstar Rating of 2.1 stars, the risk-adjusted performance of ETF Managers's open-end and exchange-traded funds falls short of competitors.

Parent

AI Powered Equity ETF

AIEQ is an actively-managed fund of US stocks selected by a proprietary, quantitative model that incorporates artificial intelligence (AI).

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