The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  Innovator IBD® 50 ETF to a Morningstar Medalist Rating of Negative.  The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in momentum exposure and liquidity exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. The strategy’s management team earns an Average People Pillar rating. The People Pillar rating is indirectly assigned by an analyst rather than algorithmically derived. Please see the notes following pillar section for more details. The strategy's parent firm has some investor-friendly attributes, like overall low fees, but it is held back by an unfavorable lineup success ratio. As a result, the firm gets an Average Parent Pillar 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. Innovator IBD® 50 ETF earns a Below Average Process Pillar rating. 

The process is strengthened by tracking 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. However, the rating is weakened by the fund's unremarkable long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. 

 This strategy does not differentiate itself from its Mid-Cap Growth category peers in terms of size and style exposure. Examining additional factor exposure, this strategy has continually had exposure to high-momentum stocks compared with Morningstar Category peers in the last few years. Momentum is based on the premise that market outperformers will continue to outperform, and laggards will continue to lag. This means that managers are overweighting stocks currently on a winning streak. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt towards more high-liquid assets over peers in recent years, evidenced by consistently holding companies with relatively higher trading volumes. 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. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. This is a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility factor 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 technology and consumer defensive relative to the category average by 10.8 and 5.0 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and industrials, underweight the average by 6.1 and 4.4 percentage points of assets, respectively. The strategy owns 51 securities and is relatively top-heavy. Of the strategy's assets, 37.0% are concentrated within the top 10 holdings, as opposed to the typical peer's 26.1%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, more than 400% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

Innovator’s  team is comparable to peers, resulting in an Average People Pillar rating. There are three managers listed on the fund: Anand Desai, Ernesto Tong, Dustin Lewellyn. Experience on the team is abundant, with 11 years of average portfolio management experience. Together, they manage a total of 28 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. This group has successfully retained management talent, with no departures in the past five years. 

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Average

People

Innovator's track record as a steward is mixed, leading to an Average Parent Pillar rating. An area of strength is the firm’s favorable fees for open-end and exchange-traded funds, demonstrating a firm-wide commitment to minimizing costs and maximizing investors’ returns. Fees for funds are, on average, within the second-cheapest quintile of similarly distributed strategies. The firm’s lineup has demonstrated industry-average durability. Its five-year success ratio is 50%, meaning that 50% of strategies have both survived and beaten their respective category median. A firm's success ratio indicates relative performance and provides insight into a firm’s discipline around investment strategy and product development. A notable weakness of Innovator is the inexperience of its longest-tenured managers compared with other asset managers. Managing capital through a full market cycle is a challenging prospect for seasoned managers, but with only three years of average tenure across their management team, there is cause for concern.

Parent

Innovator IBD 50 ETF

FFTY tracks an index of 50 US-listed stocks with aggressive growth characteristics. Holdings are selected based on fundamental and technical rankings. The fund can toggle to 50% T-bills based on market technical signals.

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