Virtus LifeSci Biotech Clinical Trls ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy gets an Average Process Pillar. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an 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 team managing the passive strategy earns the strategy an 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

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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. Virtus LifeSci Biotech Clinical Trls ETF earns an Average Process Pillar rating. The leading factor in the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The process is limited by 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 investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that correspond, before fees and expenses, to the price and yield performance of the LifeSci Biotechnology Clinical Trials Index.  Under normal market conditions, the fund will invest not less than 80% of its assets in component securities of the index. The index seeks to track the performance of the common stock of U.S. exchange-listed biotechnology companies with a primary product offering ("lead drug") that is typically in a Phase 1, Phase 2 or Phase 3 clinical trial stage of development, and but prior to receiving marketing approval. 

 The portfolio has allocations in its top two sectors, healthcare and financial services, that are similar to the category. The sectors with low exposure compared to category peers are basic materials and technology; however, the allocations are similar to the category. The portfolio is positioned across 108 holdings and is diversified among those holdings. In its most recent portfolio, 17.1% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 38.7%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 66% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

Virtus’s team receives An Average People Pillar rating. The most significant contributor to the rating is its parent firm's five-year success ratio of 54%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of the management team also influences the rating. Specifically, the fund has not seen a manager change in the last seven years. Lastly, the rating is limited by the combined average five-year excess return of each manager, which suggests that the funds they manage have trailed their respective category average.

People

Virtus Investment Partners has been busy; its actions support an Average Parent rating.

The publicly traded firm uses a multimanager approach. It fully owns all but one of its 13 affiliated asset managers and also uses subadvisors. Since 2020, it purchased five affiliates, expanding its alternative offerings through its 2021 Westchester Capital Management acquisition. It also entered an agreement to buy quant alternatives manager AlphaSimplex, with an expected close in early 2023. Affiliates appreciate Virtus' distribution and back-office strength, while enjoying investment autonomy. Some of its managers are strong, such as  Kayne Anderson Rudnick, which constitutes roughly 30% of Virtus' assets under management.

In 2022, Virtus was forced to find new management for 17 of its funds that were subadvised by Allianz Global Investors, following the SEC disqualification of AGI from providing advisory services to U.S.-registered funds for 10 years. While Virtus had no connection to the AGI strategies at the center of the investigation, it had to find new management for the AGI subadvised funds within 90 days. Virtus maintained some portfolio managers who moved firms, but they hired affiliates for most of the mandates. Some were natural fits, but others were questionable, such as those on Virtus Global Allocation. Meanwhile, Virtus has merged or liquidated a number of funds, and its fees tend to be above average.

Parent

Virtus LifeSci Biotech Clinical Trials ETF

BBC tracks an equally weighted index of US-listed biotech companies with lead drugs in various phases of clinical trials.

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Biotechnology stocks and sector-related exchange traded funds have been gaining momentum as investors return to this downtrodden segment of the market. Over the past month, the Virtus LifeSci Biotech Clinical Trials ETF (BBC) gained 15.5%, the Virtus LifeSci Biotech Products ETF (BBP) rose 12.8%, the SPDR S&P Biotech ETF (XBI) increased 11.3% and the ALPS [.

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