Weakness in Return Stacked® US Stocks & Mgd Futs ETF's Process and People 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 strategy earns a Below Average Process Pillar rating, the result of a recent pillar upgrade from Low. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and momentum exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And momentum exposure is rooted in holding stocks currently on a winning streak. The longest-tenured manager has a wealth of experience, but other weaknesses limit it to a Below Average People Pillar rating. To be considered a quality steward, this strategy's parent organization needs to improve factors like insignificant personal investments from portfolio managers and relatively short-tenured portfolio managers. As a result, the firm obtains a Below Average Parent Pillar rating.

Analyst Rating

iShares Core S&P 500 ETF

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. Return Stacked® US Stocks & Mgd Futs ETF earns a Below Average Process Pillar rating. 

The process benefits from the firm's five-year retention rate of 88% over the period. However, the rating is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons. The number of months that the management team has been running this vehicle together also holds the rating back.

 This strategy owns more growth stocks than its peers in the Large Blend Morningstar Category. But in terms of size exposure, it does not have much of a bias and resembles the typical portfolio. Analyzing additional factors, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also demonstrated more exposure to high-momentum stocks over peers in recent 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. Compared with category peers, the strategy also had more exposure to the Momentum factor in the most recent month. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility 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 has allocations in its top two sectors, technology and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and industrials; however, the allocations are similar to the category. The portfolio is positioned across 23 holdings and is quite concentrated. Specifically, all of the strategy's assets are housed within the top 10 holdings, versus the category’s 49.5% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Below Average

Process

Return Stacked® US Stocks & Mgd Futs ETF earns a Below Average People Pillar rating. The team is supported by the scale of its portfolio management team. With seven portfolio managers at the helm, the fund is well-staffed. However, the rating is limited by the number of months that the management team has been running this vehicle together. Since this is a newly incepted product, more time is needed to monitor the team's capability at executing the strategy. The rating is also limited because none of the managers have over $1 million invested in the fund, which would align their interests with fundholders.


Adam Donald Butler, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 12 years of listed portfolio management experience.

People

In an increasingly competitive industry, Newfound falls behind on a number of key metrics, resulting in a Below Average Parent Pillar rating. Newfound fails to live up to one of the hallmarks of stewardship, manager investment, to help align portfolio manager and shareholder interests. None of the firm’s assets are covered by an invested manager. Longest-tenured managers’ average asset-weighted tenure within the firm is slim, one year, compared with peer firms. This contributes negatively to the rating, as the current managers have limited experience running strategies at the firm. Newfound has had high portfolio management turnover over the past five years compared with peers, detracting from its rating, as long-term stability tends to go together with positive results.

Parent

Return Stacked US Stocks & Managed Futures ETF

RSST is an actively managed fund that uses leverage to stack total returns from two strategies. The fund manages a portfolio of large-cap U.S. equities alongside a long/short managed futures strategy.

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Warren Buffett once famously said: “Someone is sitting in the shade today because someone planted a tree a long time ago.” Milestones in life and in investing have a way of getting us to stop and think about decisions made that brought us here.

ETF Lessons for a New Era

Return Stacked U.S. Stocks & Managed Futures ETF is an innovative ETF that combines a U.S. equity strategy with a managed futures strategy. RSST takes a long position in the S&P 500 and overlays it with a futures-based position to create an asset class. The fund's risk factors can change constantly, and it can represent leveraged takes on certain risk factors.

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