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

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in liquidity exposure and quality exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The longest-tenured manager has a wealth of experience, but other weaknesses limit it to a Below Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Alger Weatherbie Enduring Growth ETF earns a Below Average Process Pillar rating. 

The process is bolstered by a low expense ratio, with fees ranking in its category's cheapest quintile. A higher expense ratio reduces net returns, so being affordable gives this fund a substantial advantage. However, the rating is held back by the parent firm's five-year risk-adjusted success ratio of 32%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup. The parent firm's inferior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.6 stars, also detracts from the process. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy tends to hold smaller, more growth-oriented companies compared with its average peer in the Mid-Cap Growth Morningstar Category. Analyzing additional factors, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Furthermore, this strategy has leaned toward low-yield stocks over recent years, holding fewer companies with high dividend or buyback yields. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. In recent months, the strategy also had less Yield factor exposure than 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 industrials and healthcare relative to the category average by 17.6 and 9.8 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and financial services, underweight the average by 12.4 and 7.8 percentage points of assets, respectively. The portfolio is positioned across 26 holdings and is relatively top-heavy. Of the strategy's assets, 56.8% are concentrated within the top 10 holdings, compared to the category’s 26.1% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 36% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

Alger Weatherbie Enduring Growth ETF earns a Below Average People Pillar rating. The team is supported by its team of two portfolio managers, which is sufficient to execute the process. However, the rating is weakened by the parent firm's five-year success ratio of 43%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 59% also holds the team back.


H. George Dai, the longest-tenured manager on the strategy, provides strong guidance, offering 18 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, indicating that their risk-adjusted returns have fallen below the category average.

People

Alger’s focus on growth investing has positive features, but analyst turnover and key-person risk keep its Parent Rating at Average.

Established in 1964, Alger’s dedication to growth-oriented strategies endures. The firm has fostered a solid lineup of growth managers; some of these have come from external hires rather than Alger’s abundant 27-person analyst team. While the analyst team has produced key figures such as CEO Dan Chung and manager Patrick Kelly, its high level of turnover and short average tenure (five years) likely contribute to the number of external hires and exacerbate succession risk. Furthermore, the firm’s success rides on a few mandates, including Amy Zhang’s Alger Small Cap Focus and Alger Mid Cap Focus along with Kelly’s Alger Spectra and Alger Capital Appreciation. Zhang and Kelly handle about half of the firm’s $21 billion in assets under management.

Most Alger strategies underperformed dramatically in 2021 and 2022 (through November), leading to heavy outflows from the firm's mutual funds and institutional accounts. As a result, the firm's asset base shrank to $21 billion by late 2022 from $46 billion in mid-2021. The firm has successfully operated at these asset levels in the past; however, the ability of managers to stick to their philosophy and bounce back from this market drawdown will be crucial going forward.

Average

Parent

Alger Weatherbie Enduring Growth ETF

AWEG is an actively managed, non-transparent ETF that invests in US, mid-cap growth equities with an ESG risk rating of medium from Sustainalytics. The fund utilizes the Precidian non-transparent model.

Fred Alger Management has launched the Alger Weatherbie Enduring Growth ETF (NYSE Arca: AWEG), an actively managed exchange traded fund that invests in a focused portfolio of 30 or fewer mid-cap growth companies with an ESG rating of medium or better.

News for Alger Weatherbie Enduring Growth ETF ETF (AWEG)