Weakness in Overlay Shares Municipal Bond ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest quintile among peers.  

 The management team doesn't personally invest much alongside shareholders. This is a large contributor to the strategy's Low People Pillar. The strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial underweight position in A rated bonds and has an overweight in debt with 10- to 15-year maturities compared with category peers. Even though the strategy's parent organization has some investor-friendly attributes like significant personal investments from managers, a bench of limited-tenure portfolio managers holds it back. As a result, the firm obtains a Below Average Parent Pillar.

Analyst Rating

iShares National Muni Bond ETF

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. Overlay Shares Municipal Bond ETF earns a Low Process Pillar rating.    The main driver of the rating is the parent firm's five-year retention rate of 50%, which suggests it could do more to retain its portfolio managers. The number of months that the management team has been running this vehicle together also detracts from the process. The fund's concentrated portfolio holds the process back as well, with its top 10 holdings accounting for 99% of assets. Concentration can lead to outperformance, but it amplifies the risk of a blowup.

 Compared with other funds in the Muni National Long Morningstar Category, this fund takes on significantly lower credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been substantially underweight A rated bonds in recent years. In the latest month, the strategy has also relatively underweighted A rated bonds compared with Morningstar Category peers. Additionally, there's been an overweight position in debt with 10- to 15-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with 10- to 15-year maturities in the most recent month. Finally, during the past few years, the fund leaned away from corporate debt. Nevertheless, the fund's corporate bonds exposure was in line with peers in the latest month.

 This strategy has a 4.6% 12-month yield, higher than its average peer's 3.3%. Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the category average of A, and it holds no non-investment-grade assets, despite the average peers' 2%. Strategies with lower credit risk can typically withstand market turmoil more effectively.

Process

Overlay Shares Municipal Bond ETF earns a Low People Pillar rating. The primary factor behind the rating is the instability of talent across its parent firm. The firm's asset-weighted manager tenure of four years suggests it could do more to retain portfolio managers. The turnover of its management team also holds the rating back. The fund last saw a manager change two months ago. Additionally, none of the managers have invested $1 million or more in the fund, which would align their interests with fundholders.


The team is backed by C. Shawn Gibson, the longest-tenured manager on the strategy, who provides 13 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.0 stars, reflecting average risk-adjusted performance compared to category peers. C. Shawn Gibson has an experienced listed co-manager. Together, they average 11 years of listed portfolio management experience.

People

Liquid Strategies has a ways to go to become an industry-standard steward, resulting in a Below Average Parent Pillar rating. Aside from the overall view, portfolio managers at Liquid Strategies have made a notable effort to align their interests with shareholders' by taking a personal stake and investing alongside them. Nearly 43% of the firm’s assets are represented by a manager who invests in their respective product. Liquid Strategies's longest-tenured managers do not possess the same experience as management teams at other firms, a detractor from its rating. Specifically, average asset-weighted tenure within the firm is only four years. Liquid Strategies funds have demonstrated industry-standard durability, with a 57% three-year success ratio. This means that 57% of products have both survived and beaten their respective category median.

Below Average

Parent

Overlay Shares Municipal Bond ETF

OVM is actively managed to provide exposure to U.S. municipal bonds combined with a U.S. large cap put spread strategy.

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Truly active managers shine in challenging investment environments, especially when they are given a flexible mandate. With tax-loss harvesting, active investors can deliberately sell at a loss to offset taxes on gains elsewhere in a portfolio.

Muni Investors Stay Flexible As Rates Rise

News for Overlay Shares Municipal Bond ETF ETF (OVM)