The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Virtus LifeSci Biotech Products ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar, following a downgrade from Average. The strategy gets an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial 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 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

Viking Therapeutics

Alpine Immune Sciences

Cullinan Oncology

Avidity Biosciences

Vera Therapeutics

Spyre Therapeutics Inc.

Sana Biotechnology

ImmunityBio

Dyne Therapeutics

Apogee Therapeutics Inc.

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 Products ETF earns an Average Process Pillar rating. The primary contributor to the rating is that this fund tracks an index. Historical data, such as 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 Products Index.  Under normal market conditions, and 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 at least one drug therapy approved by the U.S. Food and Drug Administration ("FDA") for marketing. 

 The portfolio has allocations in its top two sectors, healthcare and energy, 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 composed of 56 holdings and its assets are more dispersed than peers in the category. In particular, 27.3% of the fund’s assets are concentrated in the top 10 fund holdings, as opposed to the category’s 41.0% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 49% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

Virtus’s team earns a Below Average People Pillar rating. The team is strengthened by the stability of the management team. Specifically, the fund has not seen a manager change in the last seven years. However, the rating is weakened by the combined average five-year excess return of each manager, which shows that the funds they manage have fallen short of their respective category average. The parent firm's five-year retention rate of 64% also weakens the team.

Below Average

People

As Virtus Investment Partners evolves its investment affiliate roster and fund lineup, it retains an Average Parent rating.
The publicly traded firm uses a multimanager approach. It fully owns all but one of its 14 affiliated asset managers and also uses subadvisors. Since 2020, it purchased six affiliates, expanding its alternative offerings through its 2021 Westchester Capital Management acquisition and its 2023 purchase of AlphaSimplex. In 2022, Virtus combined its three fixed-income affiliates—Newfleet, Stone Harbor, and Seix—into one legal entity, Virtus Fixed Income Affiliates, though each affiliate maintains its brand and continues to manage money independently.
Virtus has also made some changes to its investment lineup. Voya became a meaningful subadvisor for Virtus, after Voya bought the US business from Allianz Global Investors, which was banned by the SEC from running registered funds in the US for 10 years. Virtus maintained some of the portfolio management teams that moved to Voya but hired affiliates for most of the 17 mandates that AGI ran. More recently, Virtus announced in November 2023 it was moving on from longtime subadvisor Vontobel in favor of affiliate Sustainable Growth Advisors.
Virtus offers distribution and back-office strength, while allowing affiliates investment autonomy. Some managers are strong, such as equity specialist Kayne Anderson Rudnick.

Parent

Virtus LifeSci Biotech Products ETF

BBP tracks an index of US-listed biotechnology companies considered to be in the product stage by the index provider.

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News for Virtus LifeSci Biotech Products ETF ETF (BBP)