Janus Henderson Small Cap Gr Alpha 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 cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in momentum exposure and an overweight in quality exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. The team managing the passive strategy earns the strategy an Average 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.

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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. Janus Henderson Small Cap Gr Alpha ETF earns an Above 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. Strong risk-adjusted performance also supports the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 52%. The measure indicates the percentage of a firm's funds that survived and outperformed 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.

 This strategy tends to hold smaller, more undervalued companies than its average peer in the Small Growth Morningstar Category. Examining additional factor exposure, this strategy has had relatively low exposure to momentum stocks compared with Morningstar Category peers continually in the last few years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term. As top performers change, this can sometimes be hard to capture without higher trading costs. In the latest month, the strategy was also less exposed to the Momentum factor compared with Morningstar Category peers. This strategy also has tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity, during these years. Such holdings could cause it to trail peers during economic booms, but help it better withstand busts. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This contributes to 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 industrials by 7.9 percentage points in terms of assets compared with the category average, and its basic materials allocation is similar to the category. The sectors with low exposure compared to category peers are technology and consumer defensive, underweight the average by 6.0 and 2.8 percentage points of assets, respectively. The portfolio is composed of 203 holdings and is similarly diversified as peers, with 25.3% of portfolio assets concentrated within the top 10 holdings. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 105% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Janus Henderson’s team earns An Average People Pillar rating. The main contributor to the rating is the stability of the management team. Specifically, the fund has not seen a manager change in the last six years. This fund tracks an index, which also improves its People rating. Historical data, such as Morningstar's Active/Passive Barometer, finds that index funds have generally outperformed their active counterparts, especially over the long term. Lastly, the rating is limited by the parent firm's five-year retention rate of 69%, which suggests it could do more to retain its portfolio managers.

Average

People

Under new leadership, Janus Henderson Investors is in the early paces of a fortified vision. It maintains an Average Parent rating.

Ali Dibadj took the CEO reins in June 2022 when the public company's board made a leadership change after the firm, formed by the 2017 merger of Janus Capital and Henderson Group, stagnated. Dibadj, who has a background in investment management (most recently as AllianceBernstein's strategy head and CFO), has energetically engaged the organization to develop his strategic road map: protect and grow the core business; amplify existing capabilities; and diversify into new areas, which could include acquisitions. While these ideas aren't unique in today's asset-management industry or brand new to Janus Henderson—its former CEO espoused similar ones—Dibadj added his stamp by refreshing the firm's executive committee and investment team leadership. This has also included the basic but necessary addition of scorecards to measure progress on strategic initiatives that include new vehicles like exchange-traded funds and separate accounts, among other things.

Time will tell if Dibadj and team can deliver. The firm's equity analysts continue to turn over, but portfolio managers have executed their strategies consistently, and some key figures returned. In 2023's first quarter, the firm saw net inflows for the first time since the merger—a sign of a nascent turnaround.

Parent

Janus Henderson Small Cap Growth Alpha ETF

JSML tracks a market cap-weighted index of US small cap stocks selected by fundamental measures of growth, profitability and capital efficiency. Weighting relies on the actively-managed Janus Venture Fund.

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