The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  AAM S&P Emerging Markets Hi Div Val ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in yield exposure and has an overweight in liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. 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 sizeable personal investments from managers, an unsuccessful risk-adjusted track record holds it back. As a result, the firm obtains a Below Average Parent Pillar.

Analyst Rating

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iShares Edge MSCI Multifactor Industrials ETF

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 Emerging Markets Hi Div Val ETF earns an Average Process Pillar rating. 

The most substantial contributor to 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. Excellent risk-adjusted performance also contributes to the process. 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 33%. 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 skews toward smaller, more undervalued companies compared with its average peer in the Diversified Emerging Mkts Morningstar Category. Analyzing additional factors, 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. 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. 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. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. Compared with category peers, however, the strategy had less Liquidity factor exposure in the latest month. In addition, this strategy has had a bias away from momentum stocks during these years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. Nevertheless, the fund's Momentum exposure was in line with peers in the latest month. 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 7.7 and 6.4 percentage points, respectively. The sectors with low exposure compared to category peers are technology and financial services, underweight the average by 18.7 and 12.3 percentage points of assets, respectively. The portfolio is composed of 63 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 20.8% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category average's 25.3%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 183% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

AAM’s team receives a Below Average People Pillar rating. The team is supported by the strategy's fees, which rank in its category's cheapest fifth. Fees detract from net returns, so the team has a lower expense hurdle to overcome. The combined average three-year excess return of each manager weakens the team. It suggests that the funds they manage have fallen short of their respective category's average return.

Below Average

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

AAM S&P Emerging Markets High Dividend Value ETF 

EEMD tracks an equal-weighted index of emerging-market large- and mid-cap stocks. Holdings are selected for both high dividend yield and free-cash-flow yield.

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Dividend stocks, including REITs and utilities, have underperformed in recent years. Rising interest rates and increasing costs of capital have contributed to the underperformance. The beginnings of a strong dividend stock rally may have just begun on the back of some very good news.

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Investing in dividend-paying stocks has proved to be a helpful strategy, outperforming global markets over the long term. Dividend income strategies play an important role for multi-asset income portfolios. But they can also run the risk of being too narrowly focused, which can limit both income potential and upside participation when equity markets rise.

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Stocks paying higher dividends showed their mettle during a challenging 2022: the S&P 500 High Dividend Index declined only a modest –1.1% even as the S&P 500 tumbled –18.1%. In our view, much of the volatility in high-dividend strategies, broadly speaking, comes down to portfolio design choices, which can create very different characteristics.

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News for AAM S&P Emerging Markets High Dividend Value ETF ETF (EEMD)