An upgrade in its Process Pillar rating is the primary driver of VanEck Retail ETF's upgrade to a Morningstar Medalist Rating of Silver from Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in liquidity exposure and volatility exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including overall low fees but is held back by high portfolio manager turnover.

Analyst Rating

Amazon

Home Depot

Walmart

Costco

CVS Health

Lowe's

McKesson

O'Reilly Automotive

Target

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. VanEck Retail ETF earns an Above Average Process Pillar rating. The most notable contributor to the rating is the fund's strong 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 was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by its parent firm's disappointing risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.7 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Retail 25 Index.  The fund normally invests at least 80% of its total assets in securities that comprise the fund's benchmark index. To be initially eligible for the index, companies must generate at least 50% of their revenues from retail. Retail includes companies engaged primarily in retail distribution; wholesalers; online, and direct mail and TV retailers; multi-line retailers; specialty retailers; and food and other staples retailers. The fund is non-diversified. 

 The portfolio is overweight in consumer defensive and healthcare relative to the category average by 23.7 and 12.6 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and industrials, underweight the average by 23.5 and 7.3 percentage points of assets, respectively. The portfolio is composed of 26 holdings and is quite concentrated. In particular, 71.3% of the portfolio's assets are housed within the top 10 holdings, compared to the category’s 48.6% average. And in closing, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

Above Average

Process

VanEck’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 Peter Liao as the only listed manager at the helm, who brings 17 years of portfolio management experience to the table. They manage over 25 strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. In fact, there has been recent turnover with a manager leaving within the last 11 months. Even though it is a passive fund, constantly changing hands can still hinder the effectiveness of the investment process. 

 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.

Average

People

VanEck’s ownership structure and specialization make it unique among industry peers. The firm’s founding family and namesake still have control, and its product lineup still reflects its legacy as a specialist in niche market segments. VanEck earns an Average Parent Pillar rating. 

Founded by John van Eck in 1955, the firm staked its claim in the industry by capitalizing on burgeoning markets. Starting with the opening of Western Europe to U.S.-based investors in the wake of the Marshall Plan, VanEck’s largest and most successful products provide exposure to areas of the market that are off the beaten path, such as hard assets, emerging-markets debt, and below-investment-grade-rated corporate debt.

Through its history, VanEck has taken an opportunistic approach to product development. For instance, since 2018, VanEck has launched strategies that provide exposures ranging from international REITs to companies involved in video game development. Regardless of where their reach takes them, however, VanEck builds a case that the strategy will be relevant over the long term and that its risks must be easy to understand. However, not all its products catch on, and the firm has shuttered several offerings in the last decade. 

VanEck remains a privately held firm, wholly owned by CEO Jan van Eck and his family. Although this enables the firm to focus on the long term and the firm offers some employees participation in profits, the firm hasn’t used equity as a recruiting and retention tool and introduces some key-person risk in the executive suite.

Parent

VanEck Vectors Retail ETF

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