Weakness in ALPS O'Shares Glbl Internet Gnts ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing this passive strategy earns a Below Average People Pillar rating. Although this strategy's parent firm still has a way to go to be a high-quality steward, it has bright spots like significant personal investments from managers but could focus on a relatively inexperienced portfolio management team. As a result, the firm earns a Low Parent Pillar.

Analyst Rating

Microsoft

Alphabet

Amazon

ServiceNow

CrowdStrike

Shopify

Netflix

MercadoLibre

Uber

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. ALPS O'Shares Glbl Internet Gnts ETF earns a Below Average Process Pillar rating. 

The process benefits from tracking 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. However, the rating is limited by the fund's unremarkable long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 62% also holds the rating back.

 This strategy skews toward smaller, more growth-oriented companies compared with its average peer in the Technology Morningstar Category. Looking at additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last 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 experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. 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 consumer cyclical and communication services relative to the category average by 14.1 and 11.4 percentage points, respectively. The sectors with low exposure compared to category peers are technology and industrials, underweight the average by 19.3 and 2.6 percentage points of assets, respectively. The portfolio is positioned across 79 holdings and its assets are more dispersed than peers in the category. In particular, 33.5% of the portfolio's assets are concentrated in the top 10 fund holdings, compared to the category’s 52.3% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 51% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

ALPS’s team earns a Below Average People Pillar rating. The team is bolstered by the portfolio managers' outperformance of peers at the funds they run, as measured by their combined three-year manager excess returns. However, the rating is limited by the parent firm's five-year success ratio of 42%. The measure indicates the percentage of a firm's funds that survived and beat 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 62% also weakens the team.

People

ALPS has a ways to go to become an industry-standard steward, resulting in a Low Parent Pillar rating. Despite the negative rating, an area of strength of the firm is manager investment.  Over 34% of the firm's assets are covered by invested managers, in an effort to align portfolio manager and shareholder interests. With an average asset-weighted tenure of eight years among the longest-tenured managers at ALPS, 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. The firm charges fees on its open-end and exchange-traded funds that are on par with category peers. On average, fund fees on its products fall in the middle quintile, giving it neither an advantage nor disadvantage compared with the competition.

Parent

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