Putnam Sustainable Future ETF’s Process Pillar rating is Average, but a strong management team still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy gets an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in liquidity exposure and yield exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. 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.

Analyst Rating

iShares Russell Mid-Cap Growth ETF

Federal Signal

CrowdStrike

Cintas

Thermo Fisher Scientific

ResMed

Danaher

DexCom

Sprouts Farmers Markets

Intuitive Surgical

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. Putnam Sustainable Future ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the firm's five-year retention rate of 77% over the period. The process is limited by the fund's mediocre 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.

 This strategy leans toward larger, higher-growth companies than its average peer in the Mid-Cap Growth Morningstar Category. Examining additional factor exposure, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. This strategy has also leaned away from the stocks of companies with high dividend or buyback yields over these years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. Additionally, the strategy has demonstrated a contrarian approach with relatively low exposure to momentum stocks during these years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. In this month, however, the strategy had more exposure to the Momentum factor than 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 healthcare and technology relative to the category average by 7.6 and 5.8 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and consumer cyclical, underweight the average by 4.5 and 3.1 percentage points of assets, respectively. The strategy owns 65 securities and is similarly diversified as peers, with 24.3% of portfolio assets concentrated within the top 10 holdings. And finally, in terms of portfolio turnover, on a year-over-year basis, 65% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

Putnam Sustainable Future ETF earns an Above Average People Pillar rating. The most significant contributor to the rating is the firm's five-year retention rate of 77%. The stability of the management team also contributes to the rating. Specifically, the fund has not seen a manager change in the last three years. Lastly, the rating is limited by the size of its portfolio management team, only two portfolio managers.


Katherine Collins, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.1 stars, demonstrating average risk-adjusted performance. The team's personal investments in the fund are insignificant, with the maximum investment by either manager being between $50,000 and $100,000. That amount is too small to help align managers' interests with the fund's investors.

Above Average

People

Franklin Templeton Investments, the asset-management arm of publicly traded but family managed Franklin Resources BEN, has been busy with acquisitions. The struggle in streamlining these disparate capabilities underpins its Average Parent rating. 
Franklin’s July 2020 acquisition of multiboutique manager Legg Mason remains its largest as of March 2023, but the firm has continued to grow through acquisitions. Its April 2022 and November 2022 purchases of Lexington Partners and Alcentra, respectively, make it one of world’s largest managers of alternative investments (with alts comprising USD 231 billion of its USD 1.4 trillion assets under management as of December 2022), while its July 2022 acquisition of O’Shaughnessy Asset Management adds a novel direct-indexing capability to its managed account offerings. These purchases, however, do little to alleviate the operational complexity of a firm with dozens of investment teams split by asset class, region, and investment platform.   
Although there are several standout strategies at the firm, many teams have struggled with personnel turnover, succession challenges, and unappealing performance patterns. Shepherding these geographically disparate capabilities, which have varying levels of centralization of distribution and risk management, shall be quite the challenge for the firm to manage.

Parent

Putnam Sustainable Future ETF

PFUT is an actively managed, non-transparent fund that seeks capital appreciation by targeting US-listed companies with positive environmental, social, and economic development contributions measured by proprietary sustainability criteria. The fund utilizes the Fidelity non-transparent model.

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