BNY Mellon Sustainable US Equity ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy receives an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The strategy's management team changed completely about two years ago, so the strategy gets 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

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. BNY Mellon Sustainable US Equity ETF earns an Average Process Pillar rating. 

The predominant contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 58%. 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. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also bolster the process. The pattern of low expenses at the firm indicates that it is focused on delivering strong results for investors. Lastly, the process is limited by the parent firm's five-year retention rate of 60%, which suggests it could do more to retain its portfolio managers.

 This strategy skews toward smaller, higher-growth companies than its average peer in the Large Blend Morningstar Category. Looking at additional factor exposure, this strategy has held more highly liquid stocks 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 leaned away from the stocks of companies with high dividend or buyback yields over these years. 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. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. During the last few years, this strategy has also tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity. This means the fund holds consistently profitable, growing companies with solid balance sheets that may help it endure downturns better than Morningstar Category peers. In this month, the strategy also had more exposure to the Quality 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 technology and healthcare relative to the category average by 8.4 and 3.0 percentage points, respectively. The sectors with low exposure compared to category peers are energy and consumer cyclical, underweight the average by 3.9 and 3.8 percentage points of assets, respectively. The portfolio is positioned across 43 holdings and is diversified among those holdings. In its most recent portfolio, 44.3% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category’s 48.8% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 37% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

The fund earns an Average People Pillar rating. This strategy has seen its entire listed management team change within the past three years. Even though this strategy dates back to December 2021, it's difficult to analyze the new team until they spend more time on the strategy.

People

BNY Mellon Investment Management, the asset-management arm of financial conglomerate Bank of New York Mellon, has been busy with changes since CEO Hanneke Smits ascended to her seat in October 2020. The firm’s seven wholly owned but autonomous investment affiliates mostly focus on distinct asset classes. Smits streamlined this arrangement in February 2021 by consolidating most of BNYIM’s active fixed-income and equity capabilities into two affiliates, Insight and Newton, respectively, and by trimming overlapping investment teams; further, the firm sold private-credit-focused Alcentra to Franklin Templeton in May 2022 partially because of that boutique’s operational complexity. Smits believes these organizational changes should help BNYIM’s affiliates manage their strategies more effectively. Yet the firm’s broad strategy lineup remains bloated owing in part to the affiliates’ openness to customized client requests regardless of asset size. 

Smits has sought to improve collaboration across the firm’s investment teams, including by pushing affiliate CEOs to replace “star managers” with comanagers on most strategies. This is a noteworthy effort, but it led to the departure of some managers who didn’t want to partake in the new model. Amid the uncertainty of how these and other changes ultimately shake out, the firm retains its Average Parent rating.

Parent

BNY Mellon Sustainable US Equity ETF

BKUS is an actively-managed portfolio of all-cap companies in the US, selected for their attractive investment attributes and sustainable business practices.

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