Decreased confidence in LeaderSharesTM AlphaFactor® US Cr Eq ETF's prospects relative to its Morningstar Category peers results in  a downgrade in this strategy's Morningstar Medalist Rating to Neutral from Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable overweight position in yield exposure and volatility exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. To be considered a quality steward, this strategy's parent organization needs to improve factors like a bench of unseasoned portfolio managers and steep fees. As a result, the firm obtains a Low Parent Pillar rating.

Analyst Rating

Fair Isaac

Science Applications International

Core & Main

Cardinal Health

PulteGroup

D.R. Horton

Grand Canyon Education

Toll Brothers

The AZEK Company

KLA-Tencor

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. LeaderSharesTM AlphaFactor® US Cr Eq ETF earns an Above Average Process Pillar rating. The primary 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 the instability of management across its parent firm. The firm's asset-weighted manager tenure of seven years suggests it could do more to retain portfolio managers.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that correspond generally, before fees and expenses, to the performance of the AlphaFactor® US Core Equity Index.  Under normal circumstances, at least 80% of the fund's net assets, including any borrowings for investment purposes, will be invested in a diversified portfolio of equity securities of U.S. common stocks included in the index. The index utilizes a quantitative rules-based investment methodology that applies a multi-factor ranking process and is focused on the largest 1, and 000 U.S. common stocks based on market capitalization. 

 The portfolio is overweight in energy and consumer cyclical relative to the category average by 10.5 and 4.2 percentage points, respectively. The sectors with low exposure compared to category peers are real estate and industrials, underweight the average by 6.1 and 6.0 percentage points of assets, respectively. The portfolio is composed of 101 holdings and is diversified among those holdings. In its most recent portfolio, 10.8% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category average's 14.8%.

Above Average

Process

Redwood Asset’s team earns a Below Average People Pillar rating. The team benefits from the stability of the management team. Specifically, the fund has not seen a manager change in the last five years. However, the rating is limited by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns. The rating is also limited because no manager has invested more than $1 million the fund, which would align their interests with fundholders.

Below Average

People

Redwood Asset fails to meet industry-standard stewardship qualities, culminating in a Low Parent Pillar rating. With an average asset-weighted tenure of seven years among the longest-tenured managers at Redwood Asset, the firm is on par with peers. Seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions. Open-end and exchange-traded fund fees are a weakness at the firm, contributing negatively to the rating. On average, the firm charges fees on its funds that are in the second most-expensive quintile of category peers. With the current market environment of fee compression, this is cause for concern, as investors may flock to alternate asset managers over time to get a better deal. Redwood Asset has faced above-average manager turnover in the past five years. This is a concern, as long-term stability tends to support positive results.

Parent

LeaderShares AlphaFactor US Core Equity ETF

LSAF tracks an equal-weighted index of US stocks selected by multiple fundamental factors.

News for LeaderShares AlphaFactor US Core Equity ETF ETF (LSAF)