Sound Equity Dividend Income ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy benefits from its experienced portfolio management team. This is a positive driver for the strategy's Average People Pillar rating. The strategy merits an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable overweight position in liquidity exposure and has a substantial underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's parent firm has some investor-friendly attributes, like continuity among portfolio managers, but it is held back by a low success ratio across its lineup. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

LyondellBasell Industries

ONEOK

Patterson Companies

Omnicom Group

Greif Inc - Ordinary Shares - Class B

Enbridge

Cisco Systems

Citigroup

AT&T

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. Sound Equity Dividend Income ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the firm's five-year retention rate of 100% over the period. The parent firm's impressive risk-adjusted performance, as shown by its average overall Morningstar Rating of 3.5 stars, also strengthens the process. 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 skews toward smaller, more undervalued companies than its average peer in the Large Value Morningstar Category. Analyzing additional factors, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. This is a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility 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 energy and healthcare relative to the category average by 8.6 and 4.8 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and financial services, underweight the average by 9.2 and 5.9 percentage points of assets, respectively. The portfolio is positioned across 35 holdings and is quite concentrated. Specifically, 40.5% of the portfolio's assets are housed within the top 10 holdings, compared to the typical peer's 27.4%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 17% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

Sound Equity Dividend Income ETF earns an Average People Pillar rating. The largest contributor to the rating is the firm's five-year retention rate of 100%. A low cost, with fees that rank in its category's least expensive 20%, also strengthens the rating. A higher expense ratio reduces net returns, so low costs give this team an advantage. Lastly, the rating is limited by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns.


Michael J. Venuto, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 11 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, reflecting below-average risk-adjusted performance compared to category peers. Michael J. Venuto has an experienced backdrop of support. The three listed managers boast 10 years of average listed portfolio management experience. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

People

In a competitive industry, Sound Income Strategies doesn't differentiate itself enough, leading to an Average Parent Pillar rating. A source of strength is that the firm has been adept at retaining portfolio management talent, providing continuity for strategies, as shown by low turnover since the firm's inception compared with others in the industry. The firm's lineup has had about-average initial results. Its three-year risk-adjusted success ratio is 50%, indicating that of the strategies with a three-year track record, 50% have both survived and beaten their respective category median on a risk-adjusted basis. A high success ratio indicates good performance and provides insight into a firm’s discipline around investment strategy and product development. Sound Income Strategies's longest-tenured managers do not possess comparable experience as teams at other firms, a cause for concern. Specifically, average tenure within the firm is three years. As such, there is less confidence in the group's ability to manage capital through a full market cycle effectively.

Parent

Sound Equity Income ETF

DIVY aims to deliver exposure to the dividend growth of stocks trading in the US, Europe and Japan. The actively managed fund relies on derivatives, and typically holds no stocks.

DIVY is an actively managed, narrow portfolio, of US large- and mid-cap stocks, fundamentally selected for capital appreciation and dividend yield.

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