VictoryShares US Small Cap Vol Wtd ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in liquidity exposure and momentum exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. 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

MGE Energy

Nelnet

MDU Resources Group

Kirby

MGIC Investment

Wendy's

Hanover Insurance Group

FirstCash Holdings

Ingles Markets

MSC Industrial Direct

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. VictoryShares US Small Cap Vol Wtd ETF earns an Above Average Process Pillar rating. 

The predominant contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Excellent risk-adjusted performance also contributes to the process. This can be seen in the fund's five-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 46%. 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 subpar success ratio suggests that the firm could do better across its fund lineup.

 This strategy tends to hold smaller, deeper value companies than its average peer in the Small Blend Morningstar Category. Examining additional factor exposure, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. This strategy has had lower exposure to momentum stocks over peers in recent years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. Similarly, in recent months, the strategy also had less exposure to the Momentum factor than peers. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. 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. 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 consumer defensive and financial services relative to the category average by 5.1 and 4.5 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and real estate, underweight the average by 7.3 and 5.3 percentage points of assets, respectively. The strategy owns 500 securities and its assets are more dispersed than peers in the category. In particular, 4.2% of the portfolio's assets are concentrated in the top 10 fund holdings, compared to the category’s 23.9% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 68% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Victory Capital’s  team is comparable to peers, resulting in 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 10 years of portfolio management experience to the table. They manage a total of 17 strategies, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, they fall short and will struggle to produce positive alpha relative to the category median. 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 Small Cap Volatility Wtd ETF

CSA tracks an inverse-volatility-weighted index of 500 largest US companies in the small-cap space meeting certain market capitalization limit.

VictoryShares US Small Cap High Div Volatility Wtd ETF

CSB focuses on high yielders in the small-cap space and also attempts to tone down the overall volatility profile of the portfolio.

CSB: Deserves More Attention

A $1.9 trillion Covid-19 relief bill is putting green back into the markets, but new triggers could easily douse the markets with more volatility. Recent small cap gains are particularly susceptible.

News for VictoryShares US Small Cap Volatility Wtd ETF ETF (CSA)