Arrow DWA Tactical International ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the highest quintile among peers.  

 The strategy gets an Average Process Pillar. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in momentum exposure and an underweight in yield exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The team managing the passive strategy earns the strategy an Average People Pillar rating. To be considered a quality steward, this strategy's parent organization needs to improve factors like a bench of relatively inexperienced portfolio managers and a pattern of portfolio manager churn. As a result, the firm obtains a Below Average Parent Pillar rating.

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 index on a risk-adjusted basis over the long term. Arrow DWA Tactical International ETF earns an Average Process Pillar rating. 

The main driver of the rating is that this fund tracks 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. Excellent 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 the parent firm's five-year risk-adjusted success ratio of 25%. 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. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy tends to hold smaller, more growth-oriented companies than its average peer in the Foreign Large Blend Morningstar Category. Looking at additional factor exposure, this strategy has continually had exposure to high-momentum stocks compared with Morningstar Category peers in the last few years. Momentum is based on the premise that stocks that have recently outperformed will continue to outperform, and those that have underperformed will stay behind. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy also has had lower yield exposure than peers over these years; its portfolio has held fewer stocks with high dividend or buyback yields. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. 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 financial services and utilities relative to the category average by 8.1 and 4.0 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and technology, underweight the average by 8.4 and 5.6 percentage points of assets, respectively. The portfolio is composed of 16 holdings and is quite concentrated. In particular, all of the strategy's assets are housed within the top 10 holdings, versus the typical peer's 15.4%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 193% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

ArrowShares’s team receives An Average People Pillar rating. The main contributor to the rating is the portfolio managers' outperformance of peers at the funds they run, as measured by their combined three-year manager excess returns. The rating is limited by the turnover of its management team. The fund last saw a manager change two months ago, which suggests that it could do more to retain its portfolio managers.

People

In an increasingly competitive industry, ArrowShares falls behind on a number of key metrics, resulting in a Below Average Parent Pillar rating. With an average tenure of seven years among the longest-tenured managers at ArrowShares, 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. ArrowShares management has lacked continuity over the past five years, denoted by higher-than-average portfolio manager turnover, which detracts from the firm's stewardship rating. The firm charges fees on its open-end and exchange-traded funds that are on par with category peers. On average, fund fees on its products fall in the middle quintile, giving it neither an advantage nor disadvantage compared with the competition.

Below Average

Parent

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