Madison Covered Call ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.  

 The strategy receives an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in momentum exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more 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. This management team has a wealth of experience, but still gets an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Danaher

Las Vegas Sands

Texas Instruments

CME Group

Lowe's

Cisco Systems

Constellation Brands

Adobe

Microsoft

Alphabet

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. Madison Covered Call ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 55%. 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 stability of talent across its parent firm also influences the rating. The firm's asset-weighted manager tenure of 21 years demonstrates its ability to retain portfolio managers. Lastly, the process is limited by its parent firm's risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.0 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy tends to hold smaller, deeper value companies than its average peer in the Large Blend Morningstar Category. Examining additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last 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 also demonstrated a bias towards lower-momentum stocks over its peers over the past 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. 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 beat 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 defensive by 3.1 percentage points in terms of assets compared with the category average, and its utilities allocation is similar to the category. The sectors with low exposure compared to category peers are technology and industrials, underweight the average by 4.4 and 2.8 percentage points of assets, respectively. The strategy owns 47 securities and its assets are more dispersed than peers in the category. In particular, 29.7% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category’s 49.5% average.

Average

Process

Madison Covered Call ETF earns an Average People Pillar rating. The combined average five-year excess return of each manager bolsters the rating. It suggests that the funds they manage have exceeded the average manager. The rating is limited by the parent firm's five-year success ratio of 39%. 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 subpar success ratio suggests that the firm could do better across its fund lineup.


Ray DiBernardo, the longest-tenured manager on the strategy, boasts 14 years of listed portfolio management experience.  Despite having a small team, the two listed managers boast 13 years of listed portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

People

Madison Investments boasts some strengths, but they are not enough to stand out in a fiercely competitive arena of active management. It maintains an Average Parent rating.

This almost half-century-old firm is on solid footing, with over $22 billion in assets under management as of December 2022, grounded in a healthy institutional business (roughly three fourths of its AUM lie here) and a growing models-delivery business. The firm's small but experienced investment team is composed of long-tenured managers who have considerable investment in their strategies and some ownership in the firm, which encourages retention. 

Madison has evolved in some ways. After a five-year stint as CEO, Paul Lefurgey relinquished the role in 2022 as Madison moved back to an executive committee management structure, which it had previously used. Longtime distribution head Steve Carl chairs the committee, and Lefurgey remains a CIO. Madison has also made changes to its performance-based remuneration plan moving to a revenue-sharing target model, with a percentage based off five- and 10-year performance. 

But it underwhelms in some important respects. It levies fees ranking no better and mostly worse than its peers', and its small investment team lacks depth. Overall, the firm is an adequate but not exceptional steward.

Parent

Madison Covered Call ETF

CVRD focuses on income generation by investing in US large- and mid-cap stocks that pay dividends, combined with an option writing strategy. The fund is actively managed.

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