Defiance 5G Next Gen Connectivity ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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 organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including a favorable lineup success ratio and a strong risk-adjusted track record.

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 index on a risk-adjusted basis over the long term. Defiance 5G Next Gen Connectivity 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. The process is limited by fees across its parent firm's funds, whose expenses rank in their category's second-cheapest quintile on average. While that's better than even higher costs, there are firms in the category with even lower fees.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the total return performance, before fees and expenses, of the Bluestar 5G Communications Index (the index).  The fund uses a passive management approach to track the total return performance, before fees and expenses, of the index. The index is a rules-based index that consists of a tiered, modified market capitalization-weighted portfolio of the U.S.-listed equity securities, including depositary receipts, of companies whose products or services are predominantly tied to the development of 5G networking and communication technologies (collectively, and “5G Companies”). 

 The portfolio is overweight in technology and real estate relative to the category average by 11.6 and 4.2 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and consumer cyclical, underweight the average by 4.5 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 49 holdings and is less top-heavy than peers. Specifically, 47.0% of the fund’s assets are concentrated within the top 10 fund holdings, as opposed to the category average's 52.3%. And finally, in terms of portfolio turnover, on a year-over-year basis, 31% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Defiance’s team is good but unexceptional, earning the strategy an Average People Pillar rating. There are three managers listed on the fund: Anand Desai, Ernesto Tong, Dustin Lewellyn. The team is well equipped, with an average of 11 years of 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.  

 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

In a competitive industry, Defiance doesn't differentiate itself enough, leading to an Average Parent Pillar rating. Longevity at the firm has been impressive. Its five-year risk-adjusted success ratio is 100%, meaning that 100% of the products have both survived and beaten their respective category median on a risk-adjusted basis. A high success ratio indicates good performance and provides insight into a firm’s discipline around investment strategy and product development. It's encouraging to see Defiance showcase strong risk-adjusted performance across its open-end and exchange-traded funds, with an average five-year Morningstar Rating of 4.0 stars. Defiance's longest-tenured managers do not possess comparable experience as teams at other firms, a cause for concern. Specifically, average tenure within the firm is two years. As such, there is less confidence in the group's ability to manage capital through a full market cycle effectively.

Parent

Defiance Next Gen Connectivity ETF

FIVG tracks a tier-weighted index of global equities related to 5G networks.

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NEW YORK--(BUSINESS WIRE)---- $FIVG #5G--Today, Defiance ETFs, a thematic ETF provider, announced that its Defiance Next Gen Connectivity ETF (FIVG) ranked #1 across all 5-star Overall ratings funds from Morningstar in the communications sector over a 3-year period, based on risk-adjusted returns as of 9/30/22.

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NEW YORK--(BUSINESS WIRE)--Today, Defiance ETFs, a leading thematic ETF provider, announced that both its Defiance Next Gen Connectivity ETF (FIVG) and the Defiance Machine Learning and Quantum ETF (QTUM) have received 5-star Overall ratings from Morningstar, based on risk-adjusted returns as of 6/30/22. FIVG was rated among 46 funds in the communications category and QTUM was rated among 262 funds in the technology category. Both FIVG and QTUM were brought to market to offer targeted exposure

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