The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Euclidean Fundamental Value ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The team managing the strategy earns a Below Average People Pillar. The strategy merits an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in quality exposure and yield exposure compared with category peers. A high quality exposure means holding stocks that are consistently profitable, growing, and have solid balance sheets. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy's parent organization is industry standard, albeit with some strong attributes like continuity among portfolio managers, but is held back by a bench of limited-tenure portfolio managers. This earns the firm an 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 benchmark on a risk-adjusted basis over the long term. Euclidean Fundamental Value ETF earns an Average Process Pillar rating. 

The main driver of the rating is the firm's five-year retention rate of 100% over the period. The process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy, over time, has consistently held more undervalued companies, compared with peers in the Small Value Morningstar Category. But in terms of market capitalization, it is on par with peers. Looking at additional factor exposure, this strategy has consistently favored high-quality stocks, including those with low financial leverage and solid returns on equity, compared with Morningstar Category peers during recent years. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. 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. Given the high trading volume of holdings, this fund also holds highly liquid assets. 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, however, the strategy had less Liquidity factor exposure 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 11.7 and 11.1 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and real estate, underweight the average by 23.2 and 4.4 percentage points of assets, respectively. The strategy owns 73 securities and is less top-heavy than peers. Specifically, 17.2% of the strategy's assets are concentrated within the top 10 fund holdings, as opposed to the typical peer's 28.1%.

Average

Process

Euclidean Fundamental Value 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 held back by the number of months that the management team has been running this vehicle together. Since this is a newly incepted product, more time is needed to monitor the team's capability at executing the strategy. A high expense ratio, with fees ranking in its category's second most expensive quintile, also holds the rating back. A higher expense ratio reduces net returns and decreases the team's odds of success.

Below Average

People

Despite a short track record as a firm of only nine months, Euclidean Technologies Management has exhibited a handful of strong qualities, earning it an Average Parent Pillar rating. The firm currently manages one vehicle, with a total of $174.4 million under management and only one strategy manager. Euclidean Technologies Management may be the new kid on the block, but John Alberg is not. They bring over 16 years of industry experience.  
 
   

 As Euclidean Technologies Management builds and continues to develop a track record, its rating will be adjusted accordingly.

Parent

Euclidean Fundamental Value ETF

ECML is an actively managed fund that targets US value stocks of any market-cap across all sectors, excluding financials. The fund uses a multi-step approach that applies machine learning in its proprietary models.

All Cap Value, Large Cap Value, and All Cap Blend styles earn an Attractive-or-better rating at the beginning of 1Q24. Investors should focus on style funds that hold quality stocks, such as the mentioned styles. Cheap funds can dupe investors, so it's important to invest in funds with good stocks and low fees.

Q1 2024 Style Ratings For ETFs And Mutual Funds

Pacer US Small Cap Cash Cows 100 ETF

Capital Group Global Growth Equity ETF

ValueShares U.S. Quantitative Value ETF

With an ever-growing list of similar-sounding ETFs to choose from, finding the best is an increasingly difficult task. My report shows the top-rated ETF for each style.

How To Find The Best Style ETFs 3Q23

Euclidean Technologies is bringing its machine learning-fueled stock strategy to the masses.

Seattle firm debuts ETF that uses machine learning for long-term equity investing

The Euclidean Fundamental Value ETF (NYSE Arca: ECML) has begun trading on the New York Stock Exchange. The actively managed fund invests in U.S. stocks across all sectors, excluding financials, that Euclidean Technologies believes are undervalued.

News for Euclidean Fundamental Value ETF ETF (ECML)