Weakness in ALPS Active Equity Opportunity ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy's management team completely turned over less than a year ago, raising concerns. This and other weaknesses earn the strategy a Below Average People Pillar rating. Even though the strategy's parent organization has some investor-friendly attributes like sizeable personal investments from managers, a cohort of unseasoned portfolio managers holds it back. As a result, the firm obtains a Low Parent Pillar.

Analyst Rating

Microsoft

NVIDIA

JPMorgan Chase & Co

Amazon

Alphabet

ConocoPhillips

American Express

UnitedHealth Group

Apple

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. ALPS Active Equity Opportunity ETF earns a Low Process Pillar rating. 

The main driver of the rating is 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. The parent firm's five-year retention rate of 62% also detracts from the process. The parent firm's five-year risk-adjusted success ratio of 43% further weakens the process. The measure indicates the percentage of a firm's funds that survived and beat 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.

 This strategy targets smaller plays than its peers’ average in the Large Blend Morningstar Category. But in terms of investment style, it is on par with peers. Looking at additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. This orientation tends to pay off most prominently when markets are hot. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. This strategy also has tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over these years. Such positions do not tend to provide much ballast for a portfolio. In recent months, the strategy also had less Quality factor exposure 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 has allocations in its top two sectors, industrials and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and technology, with healthcare underweighting the average portfolio by 3.0 percentage points of assets and technology similar to the average. The portfolio is positioned across 61 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 30.3% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 48.8% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 129% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

The fund earns a Below Average People Pillar rating. Although this strategy was incepted on June 2016, its listed management team joined within the past three years. Therefore, the fund’s historical data is not applicable to the current team.

Below Average

People

ALPS has a ways to go to become an industry-standard steward, resulting in a Low Parent Pillar rating. Despite the negative rating, an area of strength of the firm is manager investment.  Over 34% of the firm's assets are covered by invested managers, in an effort to align portfolio manager and shareholder interests. With an average asset-weighted tenure of eight years among the longest-tenured managers at ALPS, the firm is on par with peers. Seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions. The firm charges fees on its open-end and exchange-traded funds that are on par with category peers. On average, fund fees on its products fall in the middle quintile, giving it neither an advantage nor disadvantage compared with the competition.

Parent

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