Weakness in AAM S&P Dev Mkts Hi Div Val 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 Below Average People Pillar. The strategy earns a Below Average 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 liquidity exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. Even though the strategy's parent organization has some investor-friendly attributes like significant personal investments from managers, a disappointing average Morningstar Rating holds it back. As a result, the firm obtains a Below Average Parent Pillar.

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. AAM S&P Dev Mkts Hi Div Val ETF earns a Below Average Process Pillar rating. 

The process benefits from tracking an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the rating is limited by the fund's unimpressive 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 33% also weakens the process. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy tends to hold smaller, more value-oriented companies compared with its average peer in the Foreign Large Value Morningstar Category. Examining additional factor exposure, the managers have consistently overweighted yield-paying companies compared with Morningstar Category peers in recent years, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. Higher-yield stocks can provide steady income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. This strategy has also been exposed to liquid stocks during these years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. Additionally, this strategy has demonstrated a bias away from momentum stocks during these years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. In recent months, the strategy also had less Momentum factor exposure than 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 real estate and utilities relative to the category average by 7.9 and 4.7 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and industrials, underweight the average by 13.2 and 3.1 percentage points of assets, respectively. The portfolio is positioned across 58 holdings and is quite concentrated. In particular, 21.3% of the fund’s assets are housed within the top 10 holdings, versus the category average of 13.9%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 93% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

AAM’s team receives a Below Average People Pillar rating. The team benefits from the strategy's costs, which rank in its category's least expensive fifth. A higher expense ratio reduces net returns, so low costs give this team an advantage. The managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns, detracts from the team.

People

AAM has a ways to go to become an industry-standard steward, resulting in a Below Average Parent Pillar rating. Aside from the overall view, the firm's portfolio managers have worked to align their interests with investors' by taking a personal stake and investing alongside them. Almost 45% of the firm’s assets are covered by invested managers. The AAM roster of open-end and exchange-traded funds has had below-average risk-adjusted performance, as shown by its average five-year Morningstar Rating of 2.3 stars. The firm charges fees on its open-end and exchange-traded funds that are on par with category peers. On average, fees on its funds are within the middle quintile, giving it neither an advantage nor disadvantage compared with the competition.

Parent

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