Amplify Etho Climate Leadership U.S. ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in liquidity exposure and quality exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization earns the firm a Below Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

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. Amplify Etho Climate Leadership U.S. ETF earns an Above Average Process Pillar rating. The primary 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. The firm's five-year retention rate of 93% also contributes to the process. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 30%. 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 subpar success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that generally correlate (before fees and expenses) to the total return performance of the Etho Climate Leadership Index – U.S.  The index tracks the performance of the equity securities of a diversified set of U.S. companies that are leaders in their industry with respect to their carbon impact. Under normal circumstances and the fund will invest at least 80% of its total assets in U.S. companies that are leaders in their industry with respect to their carbon impact. The fund is non-diversified. 

 The portfolio is overweight in technology and financial services relative to the category average by 8.0 and 5.2 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and energy, underweight the average by 8.3 and 4.7 percentage points of assets, respectively. The portfolio is positioned across 258 holdings and is diversified among those holdings. In its most recent portfolio, 7.4% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 15.4% average.

Above Average

Process

Amplify’s team earns An Average People Pillar rating. The most important factor affecting the rating is the firm's five-year retention rate of 93%. The size of the portfolio management team also strengthens the rating. With two portfolio managers, the fund is reasonably well-resourced. Lastly, the rating is limited by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns.

Average

People

While differentiated from much of the competition, Amplify ETFs' concentrated lineup of largely thematic exchange-traded funds harbors considerable risk. It earns a Below Average Parent Rating.

Amplify targets niches not previously explored by larger ETF firms. This leads to product launches in relatively narrow parts of the market like cannabis, online retail, and battery technology. A recent acquisition of 12 mostly thematic ETFs from ETF Managers Group only enhances this focus. Products like these tend to be extremely concentrated and volatile, inviting significant risks to their investors, not the least of which are ill-timed purchases and sales. Because of these risks, product success is unpredictable and leads to more closures than there are among traditional strategies. Since its 2016 founding, Amplify has merged or liquidated several ETFs that failed to gain traction or produced poor results.

Five subadvisors are responsible for the day-to-day management of Amplify's 29 ETFs. The firm regularly reviews subadvisor activity and performance and risk data but does not have a dedicated risk management team. Overall, its subadvisory relationships seem to emphasize product development and distribution rather than long-term, proven investment merit.

Amplify ETFs does what it sets out to do—offer investors differentiated ETF strategies—and leadership comes with considerable ETF experience. The firm's ETFs are not cheap but neither are they particularly pricey. Many levy category-competitive fees. Few of Amplify's ETFs should be considered core holdings, but they can serve a purpose for investors seeking specific exposures so long as shareholders understand the risks embedded.

Below Average

Parent

Amplify Etho Climate Leadership US ETF

ETHO tracks the performance of an equal-weighted index that selects US stocks that exhibit the least carbon impact within its industry. Certain industries are excluded altogether.

ETHO tracks the performance of an equal-weighted index that selects US stocks that exhibit the least carbon impact within its industry. The fund excludes certain industries with negative ESG profiles.

Designed to provide broad exposure to the Style Box - All Cap Growth category of the market, the Amplify Etho Climate Leadership U.S. ETF (ETHO) is a smart beta exchange traded fund launched on 11/19/2015.

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