Democracy International’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in yield exposure and an underweight in quality exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall low fees and minimal portfolio manager turnover. As a result, the firm gets an Average Parent Pillar 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. Democracy International Fund earns an Above Average Process Pillar rating. The leading factor in the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 100% also strengthens the process. Lastly, the process is limited by costs across its parent firm's funds, whose costs rank in their category's second-cheapest quintile on average. While that's better than even higher costs, there are firms in the category with even lower fees.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the total return performance, before fees and expenses, of the Democracy Investments International Index.  The index construction process begins with the universe of companies that are current members of the Solactive GBS Global Markets ex United States Large & Mid Cap USD Index NTR. In constructing the fund's portfolio, and the Adviser generally will use a representative sampling investment approach designed to achieve the fund's investment objective. 

 The portfolio has allocations in its top two sectors, technology and financial services, that are similar to the category. The sectors with low exposure compared to category peers are consumer defensive and industrials; however, the allocations are similar to the category. The portfolio is composed of 203 holdings and is quite concentrated. Specifically, 48.5% of the fund’s assets are housed within the top 10 holdings, versus the category’s 15.4% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 55% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Democracy Investments’s team earns An Average People Pillar rating. The main contributor to the rating is the strategy's costs, which rank in its category's least expensive fifth. Fees reduce net returns, so the team has a lower expense hurdle to overcome. This fund tracks an index, which also improves its People rating. Historical data, like Morningstar's Active/Passive Barometer, finds that index funds have generally outperformed their active counterparts, especially over longer time periods. Lastly, the rating is limited by the instability of management across its parent firm. The firm's asset-weighted manager tenure of three years suggests it could do more to retain portfolio managers.

Average

People

Even though Democracy Investments only has a two-year track record, it has shown to be an industry-standard steward, warranting an Average Parent Pillar rating. Democracy Investments currently manages one vehicle, with a total of $7.5 million under management and a bench of three portfolio managers. Despite Democracy Investments having a relatively short track record, its managers are seasoned--with an average of 12 years of total industry experience.  

 Democracy Investments deserves plaudits for its commitment to economical fees for its open-end and exchange-traded funds, which showcases its willingness to prioritize investors. The firm's average net expense ratio across all funds is in the lowest quintile of firms.  

 To keep an Average rating, Democracy Investments needs to uphold a consistent track record of positive investor experience.

Parent

Democracy International Fund

DMCY tracks an index of global, large- and mid-cap companies outside the US. The index aims to overweight investments in democratic countries while underweighting those in authoritarian countries.

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