Weakness in Clough Hedged Equity ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the highest quintile among peers.  

 The strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in volatility exposure and an underweight in yield exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. 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 portfolio management team managing the strategy earns a Below Average People Pillar rating. Although this strategy's parent firm still has a way to go to be a high-quality steward, it has bright spots like a market-tested bench of portfolio managers but could focus on a pattern of portfolio manager churn. As a result, the firm obtains a Below Average Parent Pillar.

Analyst Rating

Freeport-McMoRan

Broadcom

ASML Hld

Skyline Corp.

Humacyte

MakeMyTrip

NVIDIA

Apple

Diamondback Energy

Sterling Construction

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. Clough Hedged Equity ETF earns a Low Process Pillar rating. 

The main driver of the rating is the parent firm's five-year retention rate of 60%, which suggests it could do more to retain its portfolio managers. The parent firm's five-year risk-adjusted success ratio of 0% also limits the process. 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. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. Lastly, being an actively managed strategy detracts from the process. Historical data, like Morningstar's Active/Passive Barometer, shows that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy skews toward smaller, more growth-oriented companies compared with its average peer in the Long-Short Equity Morningstar Category. Analyzing additional factors, this strategy has consistently overweighted the volatility factor compared with Morningstar Category peers over the last few years, meaning it invests in stocks with a history of the higher standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. The managers have also tended to underweight yield compared with peers during recent years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide consistent income payments, they may cut payouts if their earnings decline. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. 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. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. 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 consumer cyclical and basic materials relative to the category average by 17.0 and 5.8 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and consumer defensive, underweight the average by 7.5 and 6.5 percentage points of assets, respectively. The strategy owns 44 securities and is relatively top-heavy. Of the strategy's assets, 28.2% are concentrated within the top 10 holdings, compared to the category’s 11.9% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, more than 400% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Process

Clough Hedged Equity ETF earns a Below Average People Pillar rating. The team is strengthened by that at least one manager has invested more than $1 million in the strategy, which aligns their interests with fundholders. However, the rating is weakened by the parent firm's five-year retention rate of 60%, which suggests it could do more to retain its portfolio managers. The parent firm's five-year success ratio of 0% also weakens the team. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

Below Average

People

clough global lags peer asset managers in a number of stewardship qualities, resulting in a Below Average Parent Pillar rating. On average, clough global longest-tenured portfolio managers have 18 years of tenure at the firm. This level of experience should give investors confidence in the group's ability to navigate a variety of market conditions. Manager turnover at clough global over the past five years has been higher than at peer asset management firms, a possible signal that company culture is a bit unstable. The firm has not had a durable product lineup. Specifically, its three-year risk-adjusted success ratio demonstrates that only 20% of products were both able to survive and beat their respective category median on a risk-adjusted basis. A low success ratio indicates poor performance and raises questions about a firm’s discipline around investment strategy and product development.

Parent

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