The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Bushido Capital US Equity ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy's management team is about as experienced as others, but due to other weaknesses, the strategy earns a Below Average People Pillar. The strategy gets an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in liquidity exposure and quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks that are consistently profitable, growing, and have solid balance sheets. The strategy's parent organization is industry standard, albeit with some strong attributes like modest portfolio manager turnover, but is held back by portfolio managers with modest tenures. This earns the firm 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. Bushido Capital US Equity ETF earns an Average Process Pillar rating. 

The predominant contributor to the rating is the firm's five-year retention rate of 100% over the period. The fund's highly diversified portfolio also strengthens the process. It stashed just 21% of assets in its top 10 holdings. Lastly, the process is limited by the experience of the management team, which averages six years at this fund.

 This strategy tends to hold smaller, deeper value companies compared with its average peer in the Large Value Morningstar Category. Analyzing additional factors, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity, during these years. Such holdings could cause it to trail peers during economic booms, but help it better withstand busts. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with 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 is overweight in energy and consumer cyclical relative to the category average by 15.9 and 11.4 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and consumer defensive, underweight the average by 17.7 and 6.4 percentage points of assets, respectively. The portfolio is composed of 52 holdings and is less top-heavy than peers. Specifically, 20.8% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category’s 27.4% average.

Average

Process

Bushido Capital US Equity ETF earns a Below Average People Pillar rating. The team benefits from the firm's five-year retention rate of 100%. However, the rating is limited by the experience of the management team, which averages six years at this fund. The number of months that the management team has been running this vehicle together also holds the rating back. Since this is a newly incepted product, more time is needed to monitor the team's capability at executing the strategy.


John H. Beatson, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 11 years of listed portfolio management experience.  John H. Beatson draws on only one other listed manager. Together, they are adequately equipped with six years of average listed portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

Below Average

People

Bushido Capital is an industry-standard asset manager, leading to an Average Parent Pillar rating. Morningstar generates quantitatively driven content for managed investments covered by the Morningstar Quantitative Rating, collectively called MQR Analysis. This strategy's Parent Pillar MQR Analysis content was not generated because of insufficient data. To generate individualized content, MQR Analysis requires sufficient data to generate its framework of “mental models” designed to mimic content written by analysts. The Quantitative Parent Pillar uses an algorithm designed to predict the Parent Pillar rating analysts would assign the investment product if they covered it.

Parent

Bushido Capital US Equity ETF

SMRI actively manages an equally weighted portfolio of 30 to 50 US stocks believed to be undervalued but financially attractive. The funds stock selection involves a fundamental value approach.

News for Bushido Capital US Equity ETF ETF (SMRI)