Despite People Pillar weakness and an Average Process Pillar, Global X Thematic Growth ETF gets enough right to retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The team managing this passive strategy earns a Low People Pillar rating. 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

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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. Global X Thematic Growth ETF earns an Average Process Pillar rating. The largest contributor to the rating is that this fund tracks 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. The size of the portfolio management team also bolsters the process. With four portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 28%. The measure indicates the percentage of a firm's funds that survived and beat 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.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Thematic Growth Index.  The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index seeks to provide broad exposure to thematic growth strategies using a portfolio of exchange-traded funds (each, and an "underlying ETF"). It is non-diversified. 

 The portfolio is overweight in communication services and utilities relative to the category average by 11.6 and 8.2 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 20.1 and 8.2 percentage points of assets, respectively. The strategy has only reported a handful of holdings, and is in a category where the typical fund has 15.4% of assets within the top 10 holdings. And finally, in terms of portfolio turnover, on a year-over-year basis, 54% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

Global X’s team receives a Low People Pillar rating. The primary detractor from the rating is the parent firm's five-year success ratio of 30%. 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 modest success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 67% also detracts from the team. The experience of the management team, which averages four years at this fund, limits the rating as well.

People

Mirae Asset Global Investments is a Korean asset manager and a key player in the Asian financial market. It is a wholly owned subsidiary of Mirae Asset Financial Group, founded by Hyeon Joo Park. Park’s leadership and entrepreneurial spirit have been the driving force behind the global rise of Mirae, and he holds a majority stake in the business. 
Mirae Asset has grown significantly over the years (USD 198 billion as of December 2022) across a diversified platform, of which about 60% of assets are managed in South Korea. We believe that Mirae’s core mutual fund business in the Asia-Pac region is relatively strong. It has a collaborative structure, a strong and large investment team, low manager turnover, competitive fees, and a disciplined approach to product-development pointing toward better stewardship practices relative to peers in these markets. However, this is in stark contrast to its exchange-traded fund business, which accounts for 41% of the total assets. 
The firm’s ETF lineup focuses largely on high-risk thematic strategies that seem gimmicky, emphasizing short-term asset-gathering. The firm appears to leverage trending topics such as robotics and artificial intelligence, virtual reality and gaming, and cloud computing. There’s a notable concern regarding the potential liquidation of these funds since they seem to be designed around investment fads. Furthermore, these products are often expensive, especially compared with broadly diversified index funds and ETFs. Unsurprisingly, Mirae's reflexive product-development strategy has led to an increase in fund closures.
Our experience engaging with the MAGI team to gather critical information for the parent assessment has not been as positive. It hasn’t been as transparent in its disclosures, and unlike its peers, its responsiveness has been inadequate. We prefer firms with a more transparent corporate culture. Overall, these actions hold us back, and the firm retains its Parent Pillar rating of Average.

Parent

Global X Thematic Growth ETF

GXTG is a passively managed fund-of-funds providing global equity exposure todisruptive-growth trends. Selectionisbased ona quantitativemethodologyemphasizingrealized sales growth.

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