Weakness in Roundhill Acquirers Deep Value ETF's Process and People 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 strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in momentum exposure and an overweight in yield exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The team managing this passive strategy earns a Low People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall attractive 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 index 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. The parent firm's five-year risk-adjusted success ratio of 0% 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 subpar success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 72% weakens the process 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. 

 The portfolio is overweight in consumer cyclical and industrials relative to the category average by 8.5 and 6.0 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and real estate, underweight the average by 10.0 and 4.3 percentage points of assets, respectively. The strategy owns 101 securities and is diversified among those holdings. In its most recent portfolio, 12.8% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category average's 28.1%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 126% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Process

Roundhill’s team receives a Low People Pillar rating. The main detractor from the rating is the experience of the management team, which averages four years at this fund. Turnover at its parent firm also holds the team back. The firm's asset-weighted manager tenure of two years suggests it could do more to hold onto portfolio managers. The parent firm's five-year success ratio of 0% further holds the rating back. 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 modest success ratio suggests that the firm could do better across its fund lineup.

People

Roundhill is an industry-standard asset manager, resulting in an Average Parent Pillar rating. An 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-lowest quintile of similarly distributed strategies. The firm has not had a durable product lineup. Specifically, its three-year success ratio demonstrates that only 0% of products both survived and beat their respective category median. A low success ratio indicates poor performance and raises questions about a firm’s discipline around investment strategy and product development. With an average five-year Morningstar Rating of 1.0 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)