Strength in Federated Hermes Short Duration Corp ETF's Process Pillar is partially offset by an Average People Pillar rating, leading 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 strategy benefits from its experienced portfolio management team. This is a positive driver for the strategy's Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and A rated bonds compared with category peers. 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.

Analyst Rating

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, repeatable execution. Federated Hermes Short Duration Corp ETF earns an Above Average Process Pillar rating.    The leading factor in the rating is the firm's five-year retention rate of 84% over the period. Management team experience, which averages 18 years at this fund, also supports the rating. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 48%. 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.

 Compared with other funds in the Short-Term Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been significantly overweight corporate bonds in recent years. In the latest month, the strategy has relatively overweighted corporate bonds compared with its peers as well. Additionally, there's been a notable overallocation to A rated bonds over the past few years. Compared with category peers, the strategy had more exposure to A rated bonds in the most recent month. Finally, during the past few years, the fund leaned meaningfully away from debt with 20- to 30-year maturities. In recent months, the strategy also had less exposure to debt with 20- to 30-year maturities compared to its peers.

 This strategy has a modest 2.6% 12-month yield, lower than its average peers' 3.7%. It also has a 5.0% 30-day SEC yield (a measure similar to yield-to-maturity). A lower yield tends to indicate lower credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio has a lower average surveyed credit quality of BBB, compared with the typical peers' A and it holds no non-investment-grade assets, despite the average peers' 2%. Strategies with more credit risk may have a higher return, but they are riskier.

Above Average

Process

Federated Hermes Short Duration Corp ETF earns an Average People Pillar rating. The most important driver of the rating is the continuity of management across its parent firm. The firm's asset-weighted manager tenure of 22 years demonstrates its ability to retain portfolio managers. The stability of the management team also supports the rating. Specifically, the fund has not seen a manager change in the last two years. Lastly, the rating is limited by the parent firm's five-year success ratio of 46%. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.


John T. Gentry, the longest-tenured manager on the strategy, provides strong guidance, offering over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, reflecting below-average risk-adjusted performance relative to category peers. John T. Gentry has an experienced listed co-manager. Together, they average 18 years of listed portfolio management experience. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

Average

People

As Federated Hermes continues to build, it maintains an Average Parent rating. 
This firm has been in building mode. In addition to purchasing London-based Hermes Investment Management (initially 60% in 2018, the rest later in early 2021), Federated Investors picked up parts of PNC’s investment-management business in 2019 and Hancock Horizon’s small set of nine mutual funds in 2021. While the latter two acquisitions were scale plays, the Hermes purchase came with an intention to transform into an ESG-investing leader in what the firm called a reverse merger.
To signal its commitment, the publicly traded but family controlled firm changed its name to Federated Hermes. Although some of Hermes’ capabilities, including its expansive active ownership effort, are compelling, integration has been slow, and it is not yet clear how well these efforts are being coordinated on either investment or product development grounds.
Meanwhile, Federated Hermes’ continues as one of the fund industry’s larger and better money market managers, with USD 420 billion in money market assets, comprising two thirds of the firm’s assets under management as of April 2022. The centralized fixed-income group (15% of AUM) is also a bright spot overall, but the disparate equity franchises (15%) have struggled with some investment personnel turnover and volatile performance. Alternatives (4%) remain limited at the firm.

Parent

Federated Hermes Short Duration Corporate ETF

FCSH seeks high current income through the active management of short-term US dollar-denominated corporate debt securities that are rated investment-grade.

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