Schwab Ariel ESG ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in momentum exposure and quality exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above 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

Norwegian Cruise Line

OneSpaWorld Holdings Limited

Lindblad Expeditions

Frank's

Brink's

nVent Electric plc

Resideo Technologies Inc

Zebra Technologies

Charles River Laboratories

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. Schwab Ariel ESG ETF earns an Average Process Pillar rating. 

The main contributor to the rating is the experience of the management team, which averages 30 years at this fund. The parent firm's risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.1 stars, also supports the process. Lastly, the process is limited by the parent firm's five-year retention rate of 75%, which suggests it could do more to retain its portfolio managers.

 This strategy prefers more value-oriented stocks compared with the average fund in its peer group, the Mid-Cap Blend Morningstar Category. But in terms of size exposure, it is similar to the average. Examining additional factor exposure, this strategy has had relatively low exposure to momentum stocks compared with Morningstar Category peers continually in the last few years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term. As top performers change, this can sometimes be hard to capture without higher trading costs. In the latest month, the strategy was also less exposed to the Momentum factor compared with Morningstar Category peers. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has shown a strong tendency to hold fewer stocks with high dividend or buyback yields over peers in recent years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings fall. In recent months, the strategy also had less Yield 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.

Average

Process

Schwab Ariel ESG ETF earns an Average People Pillar rating. John W. Rogers, the longest-tenured manager on the strategy, provides strong guidance, offering over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.0 stars, reflecting below-average risk-adjusted performance relative to category peers. John W. Rogers has an experienced listed co-manager. Together, they average over 30 years of listed portfolio management experience. As a team, they manage three investment vehicles together, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, the team falls short and will struggle to produce positive alpha. 

 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.

People

Under new but familiar leadership, Schwab Asset Management Solutions maintains its Above Average Parent Pillar rating. 

After the former Schwab CEO was named president of parent Charles Schwab Corporation in 2022, Omar Aguilar, a Schwab CIO since 2011, was promoted to CEO while retaining his CIO role. Under Aguilar's leadership, Schwab remains focused on core-oriented strategies: More than 95% of the firm's fund assets under management are in low-cost index products that are suitable for the biggest portions of investors' portfolios. Index-tracking remains are par with the best teams in the business.

Recent strategic initiatives show a desire to grow in an increasingly competitive landscape. Forays into direct indexing—which customizes separate accounts through tax-loss harvesting, values-based requests, or other client preferences—as well as some new launches, such as Schwab Municipal Bond ETF, fit the firm's strategic focus and are natural extensions of its capabilities. However, other recent launches in more-niche asset classes, including Schwab Crypto Thematic ETF, contrast previous refusals to enter trendy markets. 

Schwab benefits from its association with its parent's brokerage business. This arrangement and efficient operation allow funds to grow quickly and keep fees in line with larger competitors. Historically, Schwab has been quick to match competitor fee cuts and now sports a 0.09% asset-weighted average fee across its mutual funds and ETFs.

Above Average

Parent

Schwab Ariel ESG ETF

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