Neither people nor process stand out at VictoryShares Nasdaq Next 50 ETF, but it gets enough right to help 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 strategy’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and has an overweight in yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Super Micro Computer

Monolithic Power Systems

Tractor Supply

eBay

ICON

Axon Enterprise

Western Digital

Align Technology

NetApp

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. VictoryShares Nasdaq Next 50 ETF earns an Average Process Pillar rating. The predominant 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. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also influence the rating. The pattern of low costs at the firm indicates that it is focused on delivering strong results for investors. 

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that track the performance of the Nasdaq Q-50 Index before fees and expenses.  The fund seeks to achieve its investment objective by investing at least 80% of its assets in securities in the index. The index is composed of the 50 largest nonfinancial domestic and international companies listed on The Nasdaq Stock Market based on market capitalization after excluding the companies included in the Nasdaq-100 Index. 

 The portfolio is overweight in technology and communication services relative to the category average by 18.3 and 2.6 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and industrials, underweight the average by 10.4 and 6.2 percentage points of assets, respectively. The strategy owns 53 securities and is quite concentrated. In particular, 29.7% of the strategy's assets are housed within the top 10 holdings, compared to the category average of 25.9%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 63% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

Victory Capital’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. The fund takes a solo manager approach, with Mannik Dhillon as the only listed manager at the helm, who brings 10 years of portfolio management experience to the table. They manage a total of 17 strategies, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, they fall short and will struggle to produce positive alpha relative to the category median. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

As Victory Capital Management expands a roster of investment teams that runs the gamut,  it retains an Average Parent rating.

Victory operates a multiaffiliate model. It centralizes operations, compliance, and distribution while giving its 12 franchises investment autonomy. The franchise lineup had long been composed of those primarily focused on small/mid-cap equities. But the 2019 acquisition of fixed-income shop USAA Investments (which was rebranded as Victory Income Investors in April 2023) represented a significant change to that model. The firm has continued to broaden from there, acquiring three new franchises since the start of 2021: THB Asset Management (an environmental, social, and governance specialist), New Energy Capital (an alternatives manager), and WestEnd Advisors (a third-party model strategist). Overall, Victory is as big and diverse as ever: Its assets under management as of March 2023 was $157.6 billion, much higher than the $52.8 billion level as of December 2018.

Victory’s bright spots include Sycamore Capital and Trivalent Investments, which boast strong investment cultures, good levels of manager ownership, and solid capacity management processes. But there are questions elsewhere. Victory Capital Solutions has made some questionable subadvisor changes and dubious exchange-traded fund launches in recent years; Victory Income Investors has seen several departures since the 2019 acquisition and will absorb another franchise, Incore, in September 2023.

Parent

VictoryShares Nasdaq Next 50 ETF

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