Weakness in ProShares Russell 2000 Dividend Growers's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy receives a Low 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 an overweight in yield exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall attractive fees and a strong success ratio across its product lineup. 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. ProShares Russell 2000 Dividend Growers earns a Low Process Pillar rating. 

The main driver of the rating is the fund's unimpressive 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 risk-adjusted success ratio of 38% also holds the rating back. 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. The parent firm's five-year retention rate of 58% limits the rating further.

 This strategy skews toward smaller, deeper value companies than its average peer in the Small Blend Morningstar Category. Examining additional factor exposure, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has had a bias away from momentum stocks during these 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. In recent months, the strategy also had less Momentum 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 is overweight in utilities and financial services relative to the category average by 14.0 and 11.3 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 12.4 and 10.8 percentage points of assets, respectively. The strategy owns 103 securities and is diversified among those holdings. In its most recent portfolio, 12.7% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 23.9% average. And finally, in terms of portfolio turnover, on a year-over-year basis, 33% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

ProShares’s team earns a Below Average People Pillar rating. The team benefits from the fund's structure. It tracks an index, which is helpful because historical data, like Morningstar's Active/Passive Barometer, finds that index funds have generally outperformed their active counterparts, especially over the long term. However, the rating is weakened by the parent firm's five-year success ratio of 32%. 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 modest success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 58% also limits the team.

Below Average

People

In a competitive industry, ProShares doesn't differentiate itself enough, leading to an Average Parent Pillar rating. One notable advantage of ProShares is its below-average fees. On average, the firm's open-end and exchange-traded fund fees fall in the second-cheapest quintile of category peers. The firm’s lineup has demonstrated industry-average durability. Its 10-year success ratio is 57%, meaning that 57% of strategies have both survived and beaten their respective category median. A firm's success ratio indicates relative performance and provides insight into a firm’s discipline around investment strategy and product development. ProShares has faced above-average manager turnover in the past five years. This is a concern, as long-term stability tends to support positive results.

Average

Parent

ProShares Russell 2000 Dividend Growers ETF

SMDV tracks an index of US small-cap stocks with a 10-year record of increasing dividends. Stocks are equally weighted.

Launched on 02/03/2015, the ProShares Russell 2000 Dividend Growers ETF (SMDV) is a smart beta exchange traded fund offering broad exposure to the Style Box - Small Cap Value category of the market.

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SMDV is a passively managed investment vehicle focused on small/mid-cap dividend growers. SMDV has underperformed since my previous coverage, with utilities being among the key detractors. I maintain the conservative Hold rating. I like its value factor exposure, yet both quality and growth are fairly lackluster. In the current environment, this is hardly a winning combination.

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The Russell 2000 Dividend Growers ETF holds 88 small-cap companies with at least ten consecutive years of increasing dividends. Yield is currently 2.34%, and fees are 0.40% annually. SMDV has a 14.23% five-year dividend growth rate. I expect this to dry up soon, since revenue and earnings growth don't support it. Constituents aren't very profitable, either.

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