Columbia Intl ESG Equ Income ETF retains its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in momentum exposure and liquidity exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

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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. Columbia Intl ESG Equ Income ETF earns an Above Average Process Pillar rating. 

The most significant contributor to 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. Noteworthy risk-adjusted performance also strengthens 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 50%. 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 prefers smaller market-cap companies compared with the average fund in its peer group, the Foreign Large Value Morningstar Category.  But in terms of investment style, it is on par with peers. Analyzing additional factors, this strategy has consistently had low exposure to momentum stocks in the past few years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term. As top performers change, this can sometimes be hard to capture without higher trading costs. Different from its historical appetite, however, the strategy was more exposed to the Momentum factor compared than its Morningstar Category peers in recent months. This strategy has also demonstrated an overweight liquidity risk tilt, evidenced by holding companies with relatively lower trading volumes than peers in these years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. Similarly, in recent months, the strategy also had less exposure to the Liquidity factor than peers. Additionally, this strategy's portfolio has held more stocks with high dividend or buyback yields than peers over recent years. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. In recent months, however, the strategy had less Yield 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 industrials and energy relative to the category average by 11.2 and 7.8 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and consumer cyclical, underweight the average by 6.3 and 6.0 percentage points of assets, respectively. The portfolio is composed of 108 holdings and is relatively top-heavy. Of the strategy's assets, 38.1% are concentrated within the top 10 holdings, compared to the typical peer's 13.9%. And finally, in terms of portfolio turnover, on a year-over-year basis, 156% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Columbia Threadneedle’s team receives a Below Average People Pillar rating. The team is bolstered by the strategy's costs, which rank in its category's least costly fifth. Fees detract from net returns, so the team has a lower expense hurdle to overcome. However, the rating is weakened by the parent firm's five-year retention rate of 67%, which suggests it could do more to hold onto its portfolio managers. The parent firm's five-year success ratio of 49% also detracts from the team. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

Below Average

People

Columbia Threadneedle is undergoing significant transitions on the personnel and operational fronts, underpinning an Average rating.

Colin Moore, Columbia CIO for nearly 20 years, retired at the end of 2021; William Davies, who had been CIO of global equities, replaced him. Moore had worked over the past several years to promote collaboration across his investment teams, including compelling portfolio managers to work with a centralized research pool and to act within consistent risk guardrails. The firm also made moves to streamline its product offerings, including merging or liquidating 28 strategies from January 2020 through March 2022.
These are sensible efforts, though there remain ongoing areas of uncertainty for Davies and CEO Ted Truscott to navigate. Though the firm's fixed-income team is mostly stable, its domestic-equity team has struggled for years with elevated turnover. Adding to this complexity, Columbia closed on its acquisition of Bank of Montreal's European investment business in November 2021, gaining numerous new U.S., U.K., and European-domiciled equity strategies, a compelling environmental, social, and governance capability, and a staff of 700 people. Though there are opportunities for Columbia to draw additional resources and capabilities from BMO, including specialists such as Pyrford International, it will take time to assess how these two firms mesh as a combined entity.

Average

Parent

Columbia International ESG Equity Income ETF

ESGN tracks an index composed of 100 equities from developed markets outside of the US (excluding REITs). Securities are screened for dividend yields and the Investment Managers proprietary ESGM Ratings that draw on the SASB materiality framework.

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