A strong management team and sound investment process underpin Brandes U.S. Value ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy’s management team earns a High People Pillar rating. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight liquidity exposure and momentum exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And momentum exposure is rooted in holding stocks currently on a winning streak. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Chevron

Wells Fargo

Bank of America

Merck

Halliburton

Alphabet

Frank's

McKesson

Comcast

Cigna

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Brandes U.S. Value ETF earns an Above Average Process Pillar rating. 

The most important driver of the rating is the firm's five-year retention rate of 88% over the period. The parent firm's five-year risk-adjusted success ratio of 76% also bolsters the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that the firm does well for investors and that this fund may benefit from that. Lastly, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy targets smaller plays than its peers’ average in the Large Value Morningstar Category. But in terms of style (value/growth) exposure, it is similar. Looking at additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has had more exposure to high-momentum stocks over its peers in recent years. Momentum is based on the premise that market outperformers will continue to outperform, and laggards will continue to lag. This means that managers are overweighting stocks currently on a winning streak. Compared with category peers, the strategy also had more exposure to the Momentum factor in the most recent month. In addition, this strategy has not maintained a defensive tilt, demonstrated by low exposure to the quality factor. This means the fund avoids holding firms that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. In recent months, the strategy also had less Quality 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 financial services and healthcare relative to the category average by 7.6 and 7.4 percentage points, respectively. The sectors with low exposure compared to category peers are consumer defensive and utilities, underweight the average by 6.7 and 4.9 percentage points of assets, respectively. The strategy owns 53 securities and is similarly diversified as peers, with 27.7% of portfolio assets concentrated within the top 10 holdings.

Above Average

Process

Brandes U.S. Value ETF earns a High People Pillar rating. Kenneth Little’s veteran status, with 22 years of listed portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 3.8 stars, indicating that their risk-adjusted returns exceeded the category average. Kenneth Little is supported by an experienced team, being able to draw on three additional listed managers, who average 22 years of listed portfolio management experience. As a team, they manage seven investment vehicles together, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

 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.

High

People

Brandes is a stable asset management firm centered around a single investment philosophy applied with discipline and patience. The firm earns an Above Average Parent rating.
Brandes is a small independent asset manager based in San Diego, founded by Charles Brandes in 1974. He retired in 2018 and no longer has any role at the firm. He also exited the partnership, but he is still due payments for his interests in the firm until 2029. The ownership transfer is self-funded by the firm and its existing partners, preserving the firm's independence and its sound investment culture. The planned transition to a new CEO slated for May 2024 is unlikely to shake things up. Firm veteran Oliver Murray—currently global head of client services—will replace Brent Woods, who has led the firm for the past 10 years. Woods will remain at Brandes, becoming president of the firm’s general partner with Murray reporting to him. Woods will also remain a fund manager at the firm. A series of promotions were made in conjunction, including a newly created role of director of research and the addition of three limited partners. 
We have no reason to believe the firm’s good culture will be challenged through the CEO transition. Brandes has stuck to its deep-value style over time even as assets under management have declined sharply since 2008 because of subdued performance and hefty outflows. According to senior management, the firm remains profitable, and its investment capabilities have been safeguarded. Brandes benefits from a pool of seasoned fund managers and analysts with very long tenures. It’s not rare that investment personnel spend the bulk of their careers at the firm. Teamwork is clearly emphasized with several investment committees running the strategies, which reduces key-person risk. 
Compared with appropriate value indexes, the firm’s fund range has performed well on average in the long run, though the emerging-markets equity strategy and the small fixed-income products have delivered mixed results. Another area of improvement would be to formally link the managers' variable compensation to the funds' performance. Our concerns are alleviated by the firm's co-investment policy, whereby fund managers must invest in the funds alongside investors.

Parent

Brandes US Value ETF

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News for Brandes US Value ETF ETF (BUSA)