A drop in its Process Pillar rating is the primary driver of Putnam PanAgora ESG Emerg Mkts Eq ETF's downgrade to a Morningstar Medalist Rating of Bronze from Silver. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy gets an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight momentum exposure and has a substantial underweight in volatility exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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Stewart Information Services

Nuvn PA Mun Val Shs of Benef Interest

KKR Income Opportunities Fund

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 PanAgora ESG Emerg Mkts Eq 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 its parent firm's inferior risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.5 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy prefers more value-oriented stocks compared with the average fund in its peer group, the Diversified Emerging Mkts Morningstar Category. But in terms of size exposure, it is similar to the average. Examining additional factor exposure, this strategy has consistently had exposure to high-momentum stocks compared with Morningstar Category peers over the past few years. Momentum is based on the premise that stocks that have recently outperformed will continue to outperform, and those that have underperformed will stay behind. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward low-volatility stocks in recent years, meaning companies with a lower historical standard deviation of returns. These low-risk stocks are typically at their best when markets are not. Low volatility exposure contributes to limited loss on the downside at the cost of a lag in bull markets. Similarly, in recent months, the strategy also had less exposure to the Volatility factor than peers. Additionally, this strategy's portfolio has held more stocks with high dividend or buyback yields than peers over recent years. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. In this month, the strategy also had more exposure to the Yield 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 financial services and communication services relative to the category average by 5.5 and 4.8 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and energy, underweight the average by 4.1 and 3.4 percentage points of assets, respectively. The strategy owns 95 securities and is relatively concentrated. Specifically, 43.2% of the fund’s assets are housed within the top 10 holdings, as opposed to the category’s 25.3% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 45% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

Putnam PanAgora ESG Emerg Mkts Eq ETF earns an Above Average People Pillar rating. The team is backed by Richard Tan, the longest-tenured manager on the strategy, who brings 20 years of listed portfolio management experience.  Richard Tan has an experienced listed co-manager. Together, they average 10 years of listed portfolio management experience. As a team, they manage two investment vehicles together, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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

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