The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Sound Equity Dividend Income ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's management team is about as experienced as others, but due to other weaknesses, the strategy earns a Below Average People Pillar. The strategy earns 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 considerable 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 organization still has a way to go to reach the industry standard, evidenced by  personal investments from portfolio managers and a cohort of unseasoned portfolio managers. As a result, the firm obtains a Below Average Parent Pillar rating.

Analyst Rating

LyondellBasell Industries

Omnicom Group

Patterson Companies

Greif Inc - Ordinary Shares - Class B

ONEOK

AbbVie

Enbridge

Cisco Systems

New York Community Bancorp

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 primary contributor to the rating is the firm's five-year retention rate of 100% over the period. The size of the portfolio management team also supports the process. With three portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the experience of the management team, which averages seven years at this fund.

 This strategy leans toward smaller, more undervalued companies than its average peer in the Large Value Morningstar Category. Examining additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets.  Lacking this ballast, the fund's prospects will rest on its ability to supersede 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 orientation tends to pay off most prominently when markets are hot. 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 consumer cyclical relative to the category average by 8.5 and 4.7 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer defensive, underweight the average by 8.5 and 4.6 percentage points of assets, respectively. The portfolio is positioned across 34 holdings and is quite concentrated. Specifically, 43.2% of the portfolio's assets are housed within the top 10 holdings, compared to the category’s 27.2% average. And in closing, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

Average

Process

Sound Equity Dividend Income ETF earns a Below Average People Pillar rating. The team benefits from the firm's five-year retention rate of 100%. However, the rating is weakened by the combined average five-year excess return of each manager, which indicates that the funds they manage have fallen short of their respective category average. Management team experience, which averages seven years at this fund, also detracts from the team.


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.

Below Average

People

At this time, Sound Income Strategies's assessment results in a Below Average Parent rating. In its two-year history as a firm, there has been little evidence to suggest Sound Income Strategies is a superior steward of capital compared with other asset managers. Sound Income Strategies currently runs three vehicles, with a total of $52.3 million under management and a roster of four fund managers.   

 A pocket of strength is the firm’s relatively inexpensive fees on its open-end and exchange-traded funds, demonstrating a firmwide commitment to minimizing costs and maximizing investors’ returns. The average net expense ratio of its funds is within the second-cheapest quintile of firms.  

 To upgrade the firm's rating, Sound Income Strategies will be expected to build a consistent track record of positive investor experience.

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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