Weakness in AlphaMark Actively Managed Small Cap ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in momentum exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The portfolio management team managing the strategy earns a Below Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall low fees, but it is held back by high portfolio manager turnover. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

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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. AlphaMark Actively Managed Small Cap ETF earns a Below Average Process Pillar rating. 

The process is strengthened by the stability of the management team. Specifically, the fund has not seen a manager change in the last nine years. However, the rating is weakened by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 25% also weakens the process.

 This strategy targets deeper value plays than its peers’ average in the Small Blend Morningstar Category. But in terms of size exposure, it does not have much of a bias and resembles the typical portfolio. Looking at additional factor exposure, this strategy has consistently overweighted the volatility factor compared with Morningstar Category peers over the last few years, meaning it invests in stocks with a history of the higher standard deviation of returns. This is a higher-risk, higher-reward approach. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also demonstrated a bias towards lower-momentum stocks over its peers over the past years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. Compared with category peers, however, the strategy had more exposure to the Momentum factor in the most recent month. In addition, this strategy has not maintained a defensive tilt, demonstrated by low exposure to the quality factor. This means the fund avoids holding firms that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. In this month, however, the strategy had more exposure to the Quality factor 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 is overweight in energy and financial services relative to the category average by 4.8 and 4.6 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and real estate, underweight the average by 5.0 and 3.6 percentage points of assets, respectively. The strategy owns 102 securities and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 13.9% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category average's 23.9%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 17% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

AlphaMark Actively Managed Small Cap ETF earns a Below Average People Pillar rating. The team benefits from the stability of the management team. Specifically, the fund has not seen a manager change in the last nine years. However, the rating is limited by the parent firm's five-year success ratio of 0%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. The combined average five-year excess return of each manager also holds the rating back. It shows that the funds they manage have fallen short of their respective category's average return.

People

In a competitive industry, AlphaMark doesn't differentiate itself enough, leading to an Average Parent Pillar rating. The firm charges fees for its open-end and exchange-traded funds on par with category peers. On average, fees on its funds are in the middle quintile of category peers, giving it neither an advantage nor disadvantage compared with the competition. AlphaMark has had higher portfolio management turnover than peer firms in the past five years. Turnover in the portfolio-management ranks can happen for a number of reasons, including fund mergers and liquidations, portfolio managers moving into other roles, or portfolio managers leaving the firm. In some cases, such change may not signal a serious or immediate problem at the firm, but can still be disruptive for fundholders, hinder the effectiveness of a firm’s investment processes, or suggest a weaker investment culture.

Average

Parent

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