Distillate US Fdmtl Stblty & Val ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as Process offset by weaker spots such as People. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The longest-tenured manager is experienced, but other weaknesses limit the strategy to a Below Average People Pillar rating. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy belongs to a strong firm that earns an Above Average Parent Pillar rating. The firm, for example, has had significant personal investments from managers and overall low fees.

Analyst Rating

Alphabet

UnitedHealth Group

Broadcom

Johnson & Johnson

AbbVie

Home Depot

T-Mobile US

Cisco Systems

CVS Health

Bristol-Myers

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. Distillate US Fdmtl Stblty & Val ETF earns an Above Average Process Pillar rating. 

The predominant contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 100%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Strong risk-adjusted performance also influences the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy leans toward smaller, deeper value companies than its average peer in the Large Blend 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. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Moreover, this strategy has been underweighting 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 industrials and healthcare relative to the category average by 10.7 and 7.1 percentage points, respectively. The sectors with low exposure compared to category peers are technology and financial services, underweight the average by 7.2 and 6.2 percentage points of assets, respectively. The portfolio is composed of 101 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 22.0% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category’s 51.1% average.

Above Average

Process

Distillate US Fdmtl Stblty & Val ETF earns a Below Average People Pillar rating. The team benefits from the strategy's costs, which rank in its category's second cheapest quintile. Fees detract from net returns, so the team has a lower expense hurdle to overcome. However, the rating is weakened by the turnover of management across its parent firm. The firm's asset-weighted manager tenure of six years suggests it could do more to retain portfolio managers. The instability of its management team also holds the team back. The fund last saw a manager change three years ago.


The strategy is backed by Austin Wen, the longest-tenured manager, who has been a portfolio manager for six years. The average Morningstar Rating of the strategies they currently manage is 2.9 stars, indicating that their risk-adjusted returns have been in line with the category average. Austin Wen is supported by an experienced team, being able to draw on three additional listed managers, who average 11 years of portfolio management experience. With at least one manager investing $1 million or more in this offering, investors can have some assurance that the team's interests are aligned with theirs.

Below Average

People

Distillate Capital earns an Above Average Parent Pillar rating because of its ability to stand out in an increasingly competitive field. Manager investment is an area of strength for the firm. Over 67% of the firm's assets are covered by a $1 million investment, in an effort to align portfolio manager and shareholder interests. The firm stands out from a cost perspective for its open-end and exchange-traded funds, demonstrating a firm-wide commitment to minimizing costs and maximizing investors' returns. On average, the firm's fees on its funds are in the second cheapest quintile of its category. With an average asset-weighted tenure of six years among the longest-tenured managers at Distillate Capital, the firm is on par with peers. Seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions.

Parent

Distillate U.S. Fundamental Stability & Value ETF

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