The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  VictoryShares US 500 Volatility Wtd ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an 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

Coca-Cola

McDonald's

Walmart

PepsiCo

CoreSite Realty

Cboe Global Markets

Procter & Gamble

General Dynamics

Kraft Heinz

Republic Services

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. VictoryShares US 500 Volatility Wtd ETF earns a Below Average Process Pillar rating. 

The process is bolstered by tracking 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. However, the rating is weakened by the fund's unimpressive 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 parent firm's five-year risk-adjusted success ratio of 47% also holds the process back. 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. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy skews toward smaller, more value-oriented companies compared with its average peer in the Large Blend Morningstar Category. Examining additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over 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 also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. This strategy also has tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over these years. 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 industrials and utilities relative to the category average by 6.7 and 5.6 percentage points, respectively. The sectors with low exposure compared to category peers are technology and communication services, underweight the average by 12.3 and 4.9 percentage points of assets, respectively. The portfolio is positioned across 505 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 3.7% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category average's 51.1%. And in closing, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

Below Average

Process

Victory Capital’s team is good but unexceptional, earning the strategy an Average People Pillar rating. The fund takes a solo manager approach, with Mannik Dhillon as the only listed manager at the helm, who brings nine years of portfolio management experience to the table. They manage a total of 16 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

As Victory Capital Management expands a roster of investment teams that runs the gamut,  it retains an Average Parent rating.

Victory operates a multiaffiliate model. It centralizes operations, compliance, and distribution while giving its 12 franchises investment autonomy. The franchise lineup had long been composed of those primarily focused on small/mid-cap equities. But the 2019 acquisition of fixed-income shop USAA Investments (which was rebranded as Victory Income Investors in April 2023) represented a significant change to that model. The firm has continued to broaden from there, acquiring three new franchises since the start of 2021: THB Asset Management (an environmental, social, and governance specialist), New Energy Capital (an alternatives manager), and WestEnd Advisors (a third-party model strategist). Overall, Victory is as big and diverse as ever: Its assets under management as of March 2023 was $157.6 billion, much higher than the $52.8 billion level as of December 2018.

Victory’s bright spots include Sycamore Capital and Trivalent Investments, which boast strong investment cultures, good levels of manager ownership, and solid capacity management processes. But there are questions elsewhere. Victory Capital Solutions has made some questionable subadvisor changes and dubious exchange-traded fund launches in recent years; Victory Income Investors has seen several departures since the 2019 acquisition and will absorb another franchise, Incore, in September 2023.

Parent

VictoryShares US 500 Volatility Wtd ETF

CFA tracks an index of the largest US stocks by market cap, screened for positive earnings and weighted by volatility.

With a lower unemployment rate and positive job gains reported, the economic outlook for the rest of the year is looking extremely strong, reports Reuters. While earnings season saw some initial concerns of how much growth the large- and mega-caps could continue to produce, as most outperformed yet again, a growing has helped assuage concerns.

With the Labor Market Looking Up, ‘CFA' Is Primed for Performance

Earnings season has kicked off with extremely strong growth and the expectations of positive numbers from most companies, reports CNBC.  Earnings are showing their strongest rate of growth since 2009 and the post-Great Recession recovery.

As Earnings Season Kicks Off, Look to VictoryShares's ‘CFA'

Some broad market benchmarks may not be as diverse as investors are led to believe. Take the case of the S&P 500 where six stocks – Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB) and two share classes of Alphabet (NASDAQ: GOOG) combine for over 21% of the index's weight.

Divvy Up Your Volatility with the CFA ETF

This exactly the type of environment in which investors may be inclined to embrace the low volatility factor. However, traditional strategies adhering to that factor are leaving some investors disappointed this year.

Consider a Different Avenue to Low Volatility

Markets appear sanguine for the time being, but as the March swoon reminds investors, volatility can spike at a moment’s notice. That turbulence is one reason why the low volatility factor remains popular, but investors may want to consider different approaches to the factor, including the VictoryShares US 500 Volatility Wtd ETF (CFA).

Score Victory in the Fight Against Volatility With This ETF

VictoryShares US EQ Income Enhanced Volatility Wtd ETF

VictoryShares US 500 Enhanced Volatility Wtd ETF

Investors who are concerned about concentration risks associated with the traditional market capitalization-weighted indexing approach may consider alternative index strategies, such as volatility-weighted smart beta exchange traded funds that help limit potential drawdowns.

News for VictoryShares US 500 Volatility Wtd ETF ETF (CFA)