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

 The strategy gets an Average Process Pillar. 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 momentum exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including overall attractive fees but is held back by a low success ratio across its lineup.

Analyst Rating

Activision Blizzard

Uber

DoorDash

Grab Holdings Ltd

NVIDIA

Spotify

Take-Two Interactive Software

Netflix

Electronic Arts

Snap

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. ProShares On-Demand ETF earns an Average Process Pillar rating. The most notable 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. Management team experience, which averages 16 years at this fund, also strengthens the process. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 43%. 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 subpar 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 investment results, before fees and expenses, that track the performance of the FactSet On-Demand Index (the “index”).  The index includes companies whose principal business is the provision of platforms and services for on-demand access to lifestyle needs including digital media, egaming, fitness, food delivery, ridesharing, or virtual reality experiences, as determined by the index methodology. The fund adviser seeks to remain fully invested at all times in securities and/or financial instruments that provide exposure to the returns of the index without regard to market conditions, and trends or direction. The fund is non-diversified. 

 The portfolio is overweight in communication services and technology relative to the category average by 59.1 and 19.5 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and industrials, underweight the average by 65.3 and 7.3 percentage points of assets, respectively. The portfolio has 34 holdings and invests 49.9% of assets in its top 10 holdings, similar to the category average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Average

Process

ProShares’s team receives a Below Average People Pillar rating. The team is supported by the strategy's costs, which rank in its category's second cheapest fifth. A higher expense ratio reduces net returns, so low costs give this team an advantage. However, the rating is held back by the parent firm's five-year success ratio of 32%. 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 relatively low success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 58% also holds the team back.

Below Average

People

In a competitive industry, ProShares doesn't differentiate itself enough, leading to an Average Parent Pillar rating. One notable advantage of ProShares is its below-average fees. On average, the firm's open-end and exchange-traded fund fees fall in the cheapest quintile of category peers. ProShares fails to showcase longevity across its product shelf, as evidenced by its five-year success ratio. Over this time period, only 32% of its roster has been able to both survive and beat its respective category median. A low success ratio indicates poor performance and raises questions about a firm’s discipline around investment strategy and product development. Despite other redeeming qualities as a firm, ProShares has seen some disruption among its portfolio management ranks in the past five years, denoted by elevated turnover compared to peer asset-management firms. Long-term stability tends to support positive results.

Parent

ProShares On-Demand ETF

OND tracks a market-cap-weighted index of global stocks that provides on-demand platforms and services to consumers.

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