Innovator IBD® Breakout Opps ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in momentum exposure and yield exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy’s management team earns an Average People Pillar rating. The People Pillar rating is indirectly assigned by an analyst rather than algorithmically derived. Please see the notes following pillar section for more details. The strategy's parent firm has some investor-friendly attributes, like overall affordable fees, but it is held back by a low success ratio across its lineup. As a result, the firm gets an Average Parent Pillar rating.

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. Innovator IBD® Breakout Opps ETF earns a High Process Pillar rating. 

The most meaningful contributor to the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 57% reinforces the process. The measure indicates the percentage of a firm's funds that survived and surpassed their respective category's median Morningstar Risk-Adjusted Return for the period. Their relatively high success ratio suggests that this firm does well for investors and that this fund may benefit from that.

 This strategy, over time, has consistently held more undervalued companies, compared with peers in the Mid-Cap Growth Morningstar Category. But in terms of size exposure, it is similar to the average. Examining additional factor exposure, this strategy has consistently had exposure to high-momentum stocks compared with Morningstar Category peers over the past few years. Momentum approaches bet that rising stocks will continue to rise and that lagging stocks will continue to lag. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Furthermore, the strategy had less exposure to high-volatility stocks compared with Morningstar Category peers in recent months. Such holdings can limit a strategy's downside, but cause it to lag in bull markets.  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 consumer cyclical and industrials relative to the category average by 14.8 and 2.5 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and communication services, underweight the average by 12.5 and 3.7 percentage points of assets, respectively. The portfolio is composed of 62 holdings and is quite concentrated. Specifically, 29.5% of the fund’s assets are housed within the top 10 holdings, versus the typical peer's 26.1%. And finally, in terms of portfolio turnover, on a year-over-year basis, more than 400% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

Innovator’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There are three managers listed on the fund: Anand Desai, Ernesto Tong, Dustin Lewellyn. Experience on the team is abundant, with 11 years of average portfolio management experience. Together, they manage a total of 28 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Average

People

Innovator's track record as a steward is mixed, leading to an Average Parent Pillar rating. An area of strength is the firm’s favorable fees for open-end and exchange-traded funds, demonstrating a firm-wide commitment to minimizing costs and maximizing investors’ returns. Fees for funds are, on average, within the second-cheapest quintile of similarly distributed strategies. The firm’s lineup has demonstrated industry-average durability. Its five-year success ratio is 50%, meaning that 50% of strategies have both survived and beaten their respective category median. A firm's success ratio indicates relative performance and provides insight into a firm’s discipline around investment strategy and product development. A notable weakness of Innovator is the inexperience of its longest-tenured managers compared with other asset managers. Managing capital through a full market cycle is a challenging prospect for seasoned managers, but with only three years of average tenure across their management team, there is cause for concern.

Parent

Innovator IBD(R) Breakout Opportunities ETF

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