A strong management team and sound investment process underpin Convergence Long/Short Equity ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's managers invest alongside shareholders, which helps it earn an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating.  Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a high quality exposure is rooted in holding stocks that are consistently profitable, growing, and have solid balance sheets. The strategy belongs to a strong firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a competitive lineup success ratio and overall low fees.

Analyst Rating

NVIDIA

Alphabet

Microsoft

Amazon

QUALCOMM

Applied Materials

AppLovin Corp

Micron Technology

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. Convergence Long/Short Equity ETF earns an Above Average Process Pillar rating. 

The predominant contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 100%. 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 stability of the management team also supports the rating. Specifically, the fund has not seen a manager change in the last 14 years. 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 Long-Short Equity Morningstar Category. But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Analyzing additional factors, this strategy has consistently had exposure to high-momentum stocks compared with Morningstar Category peers over the past few years. Momentum strategies wager that market outperformers will continue to outperform, and laggards will continue to lag. Higher exposure to the former could mean the managers are overweighting stocks on winning streaks. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy also has tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity, during these years. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. In this month, the strategy also had more exposure to the Yield 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 by 8.8 percentage points in terms of assets compared with the category average, and its real estate allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and consumer defensive, with industrials underweighting the average portfolio by 2.6 percentage points of assets and consumer defensive similar to the average. The strategy owns 162 securities and is quite concentrated. In particular, 24.2% of the portfolio's assets are housed within the top 10 holdings, compared to the category’s 11.9% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 284% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Convergence Long/Short Equity ETF earns an Above Average People Pillar rating. The main contributor to the rating is its parent firm's five-year success ratio of 100%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of the management team also strengthens the rating. Specifically, the fund has not seen a manager change in the last 14 years. Lastly, the rating is limited by the parent firm's five-year retention rate of 67%, which suggests it could do more to hold onto its portfolio managers.


David J. Abitz, the longest-tenured manager on the strategy, boasts 23 years of listed portfolio management experience. The average Morningstar Rating of the strategies they manage is 5.0 stars, demonstrating excellent risk-adjusted performance compared to category peers. David J. Abitz has an experienced listed co-manager. Together, they average 19 years of listed portfolio management experience. The management team is invested in the fund, but the maximum investment by any manager is between $100,000 and $500,000. An investment of more than $1 million would be ideal to align managers' interests with those of the fund's investors.

People

Convergence remains well-positioned in an increasingly competitive industry, earning it an Above Average Parent Pillar rating.  The firm charges fees on open-end and exchange-traded funds that are on par with category peers. On average, fees are within the middle quintile, giving it neither an advantage nor disadvantage compared with the competition. Manager turnover at Convergence has been higher than at peer asset management firms. Turnover in the portfolio-management ranks can happen for a number of reasons, including mergers, liquidations, and portfolio managers changing roles or leaving the firm. In some cases, a change may not signal a serious or immediate problem at the firm, but can still be disruptive for investors, hinder the effectiveness of a firm’s investment processes, or suggest a weaker investment culture.

Parent

Convergence Long/short Equity ETF

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