Weakness in Roundhill Acquirers Deep Value ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The team managing the passive strategy earns a Low People Pillar. The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable overweight position in yield exposure and has an overweight in volatility exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy's parent firm has some investor-friendly attributes, like overall reasonable fees, but it is held back by an unfavorable lineup success ratio. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

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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. Roundhill Acquirers Deep Value ETF earns a Low Process Pillar rating. The main driver of the rating is the fund's weak 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. Management team experience, which averages four years at this fund, also weakens the process. The parent firm's five-year retention rate of 72% detracts from the rating further.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the performance, before fees and expenses, of the Acquirers Deep Value Index (the "index").  The index was established in 2020 by Acquirers Funds, LLC and tracks the performance of a portfolio of 100 of the most undervalued, fundamentally strong stocks drawn from the smallest 75% of stocks listed in the U.S. by market capitalization meeting certain liquidity thresholds. The fund uses a “passive management” approach to track the performance, before fees and expenses, and of the index. The fund generally will invest in all of the component securities of the index in the same approximate proportions as in the index. It is non-diversified. 

 The portfolio is overweight in industrials and consumer defensive relative to the category average by 7.4 and 3.8 percentage points, respectively. The sectors with low exposure compared to category peers are real estate and financial services, underweight the average by 6.6 and 4.2 percentage points of assets, respectively. The strategy owns 103 securities and is diversified among those holdings. In its most recent portfolio, 12.1% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 27.7%. And in closing, in terms of portfolio turnover, this portfolio's holdings turn over more often than comparable products in its peer group, possibly resulting in higher costs for investors and a drag on performance.

Process

Roundhill’s team earns a Low People Pillar rating. The primary factor behind the rating is the experience of the management team, which averages four years at this fund. The combined average five-year excess return of each manager also holds the team back. It indicates that the funds they manage have underperformed their respective category's average return. Turnover at its parent firm further detracts from the team. The firm's asset-weighted manager tenure of 43 years suggests that it could do more to retain portfolio managers.

People

Roundhill's track record as a steward is mixed, leading to an Average Parent Pillar rating. One area of strength is the firm’s favorable fees for open-end and exchange-traded funds, demonstrating a firm-wide commitment to minimizing costs and maximizing investors’ returns. Fees for funds are, on average, within the second-cheapest quintile of similarly distributed strategies. Roundhill strategies have failed to have lengthy success. In particular, the firm's five-year risk-adjusted success ratio demonstrates that only 0% have both survived and beaten 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. With an average three-year Morningstar Rating of 1.7 stars, the risk-adjusted performance of Roundhill's open-end and exchange-traded funds falls short of competitors.

Average

Parent

Roundhill Deep Value

DEEP tracks an equal-weighted index of 100 smallest US stocks, by market-cap, that are potentially undervalued based on their fundamentals.

Roundhill Acquirers Deep Value ETF selects 100 small cap stocks with a wide discount to valuation. The fund was launched in 2014, and reshuffled in June 2020. Valuation and quality metrics are very good, but it holds 22% of risky stocks regarding my criteria.

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NEW YORK, Oct. 26, 2020 /PRNewswire/ -- The Roundhill Acquirers Deep Value ETF (NYSE: DEEP) has announced a change in its underlying index. The Acquirers Deep Value Index will now target deeply undervalued small-and-micro cap companies. The index previously focused exclusively on large...

News for Roundhill Deep Value ETF (DEEP)