Touchstone Climate Transition ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as Process offset by weaker spots such as People. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The longest-tenured manager has a wealth of experience, but due to other weaknesses, the strategy earns a Below Average People Pillar. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating.  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'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 benchmark on a risk-adjusted basis over the long term. Touchstone Climate Transition ETF earns an Above Average Process Pillar rating. 

The primary contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 63%. 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. Management team experience, which averages ten years at this fund, also supports the process. Lastly, the process is limited by the parent firm's five-year retention rate of 60%, which suggests it could do more to hold onto its portfolio managers.

 This strategy tends to hold smaller, more growth-oriented companies than its average peer in the Global Large-Stock Blend Morningstar Category. Analyzing additional factors, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. 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 exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. Additionally, this strategy has had lower yield exposure than peers, with the portfolio holding fewer stocks with high dividend or buyback yields over these years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. 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 technology and utilities relative to the category average by 10.6 and 9.5 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and healthcare, underweight the average by 11.7 and 9.4 percentage points of assets, respectively. The portfolio is composed of 55 holdings and invests 26.4% of assets in its top 10 holdings, similar to the category average. And finally, in terms of portfolio turnover, on a year-over-year basis, 65% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Morningstar generates quantitatively driven content for managed investments covered by the Morningstar Medalist Rating. This share class’ quantitatively driven People Pillar content was not generated because of insufficient data. To generate individualized content, the Medalist Rating quantitative analysis requires sufficient data to generate its framework of “mental models” designed to mimic content written by analysts.

An algorithmically assigned People Pillar uses an algorithm designed to predict the People Pillar rating analysts would assign the investment product, if they covered it.

Below Average

People

Touchstone Investments' recent moves and other characteristics support an Average Parent rating, up from Below Average.
Touchstone has made a few recent moves. As part of a portfolio manager retirement, it made a subadvisor and style change on one of its international funds, hiring value-oriented LSV in place of Fort Washington Investment Advisors, which remains its largest subadvisory partner. (Touchstone and Fort Washington are both subsidiaries of parent company Western & Southern Financial Group.) This change also includes a reduction in the fund's expense ratio. Touchstone is also merging another international fund into one run by Sands Capital and lowering expenses on the R6 share class of the acquiring fund. While manager changes and fund mergers can be disruptive to investors, they are also often a response to poor long-term performance or small asset bases. Lower fees, though, are always a positive.
These moves acknowledge the competitive nature of the fund industry. To grow in this environment, Touchstone has firmly staked its ground on providing funds and exchange-traded funds that are "distinctively active." The firm deserves credit for a consistent and well-codified approach to manager research. A small investment team evaluates new managers and existing ones along five areas it thinks lead to outperformance: organizational stability, personnel, investment discipline, firm infrastructure, and results. Although Touchstone often makes investment-style and portfolio-manager changes to funds it has acquired—it has made two substantive acquisitions in the past five years—overall a patient mindset has resulted in long-term relationships with many subadvisors even when short-term performance is weak.

Average

Parent

Touchstone Climate Transition ETF

HEAT is an actively managed fund that invests in equity and equity-related securities of three categories tied to climate transition: solution providers, transition leaders, and adaption opportunities.

Touchstone Climate Transition ETF (HEAT) recently launched a new climate transition ETF in the market.

A New Climate Transition ETF (HEAT) Hits Market

CINCINNATI, April 28, 2023 /PRNewswire/ -- Touchstone Investments, known for its Distinctively Active® mutual funds and exchange traded funds (ETFs), today announced the launch of the Touchstone Climate Transition ETF (HEAT: Cboe BZX), an actively-managed ETF that looks to invest in companies that may benefit from leading the development of solutions for or have the potential to benefit from the ongoing climate transition. The ETF, Touchstone's fifth active ETF and first thematic ETF offering, will be sub-advised by Lombard Odier Investment Managers (Lombard Odier IM) and begins trading on May 2, 2023.

News for Touchstone Climate Transition ETF ETF (HEAT)