Weakness in Guru Favorite Stocks ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy receives a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy suffers from its inexperienced portfolio management team. This largely drives the strategy's Low People Pillar rating. To be considered a quality steward, this strategy's parent organization needs to improve factors like a bench of relatively inexperienced portfolio managers; however, it has displayed overall attractive fees. As a result, the firm obtains a Below Average Parent Pillar rating.

Analyst Rating

Microsoft

Alphabet

Brown & Brown

NVIDIA

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Visa

Elevance Health Inc

Mastercard

Arthur J. Gallagher & Co.

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. Guru Favorite Stocks ETF earns a Low Process Pillar rating. 

The primary detractor from the rating is the parent firm's five-year retention rate of 75%, which suggests it could do more to retain its portfolio managers. Management team experience, which averages two years at this fund, also limits the process. Lastly, being an actively managed strategy detracts from the process. Historical data, such as Morningstar's Active/Passive Barometer, shows that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy tends to hold smaller, higher-growth companies compared with its average peer in the Large Blend Morningstar Category. Looking at additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. Furthermore, this strategy has leaned toward low-yield stocks over recent years, holding fewer companies with high dividend or buyback yields. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings fall. In recent months, the strategy also had less Yield factor exposure than 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 financial services and technology relative to the category average by 10.1 and 9.5 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and industrials, underweight the average by 7.0 and 4.6 percentage points of assets, respectively. The portfolio has 30 holdings and is about as top-heavy as the category average, with 48.5% of assets in the top 10 holdings. And finally, in terms of portfolio turnover, on a year-over-year basis, 81% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

Guru Favorite Stocks ETF earns a Low People Pillar rating. The most significant detractor from the rating is the instability of management across its parent firm. The firm's asset-weighted manager tenure of two years suggests it could do more to retain portfolio managers. Management team experience, which averages two years at this fund, also holds the team back. The instability of its management team hinders the team further. Specifically, the fund last had a manager change one year ago.

People

GuruFocus is a relative newcomer with only a two-year record. There have yet to be signs suggesting that GuruFocus is a topnotch steward. As a result, it is assigned a Below Average Parent rating until there's contrary evidence. GuruFocus currently manages one vehicle, with a total of $33.7 million under management and a roster of three fund managers. Unsurprisingly, given its short track record as a firm, the GuruFocus management team is also relatively inexperienced, with an average of two years of industry experience.  

 The firm runs moderately priced open-end and exchange-traded funds, with the average net expense ratio falling within the middle quintile of firms.  

 To upgrade the firm's rating, GuruFocus needs to build a consistent track record of positive investor experience.

Below Average

Parent

Guru Favorite Stocks ETF

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GuruFocus is excited to announce that the Guru Favorite Stocks ETF (NASDAQ:GFGF) began trading on Dec. 16, 2021. The objective of the ETF is to seek long-term capital appreciation by investing in high quality U.S. companies that are favored by prominent long-term investors (“Gurus”) and trade at reasonable valuations.

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