Day Hagan/Ned Davis Rsrch Smrt Sect ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy benefits from a notable effort from managers to align personal interests with shareholders by investing alongside them. This helps drive the team's Average People Pillar rating. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy's parent organization is industry standard, albeit with some strong attributes like continuity among portfolio managers and overall reasonable fees. This earns the firm an Average Parent Pillar rating.

Analyst Rating

iShares Core S&P 500 ETF

Technology Select Sector SPDR Fund

Financial Select Sector SPDR Fund

Health Care Select Sector SPDR Fund

Consumer Discretionary Select Sector SPDR Fund

Industrial Select Sector SPDR Fund

Consumer Staples Select Sector SPDR Fund

Communication Services Select Sector SPDR Fund

Energy Select Sector SPDR Fund

Utilities Select Sector SPDR Fund

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. Day Hagan/Ned Davis Rsrch Smrt Sect ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the firm's five-year retention rate of 100% over the period. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also strengthen the process. The pattern of low fees at the firm suggests that it is focused on delivering strong results for investors. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 0%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy, over time, has opted for smaller market-cap companies, compared with others in the Large Blend Morningstar Category.  But in terms of style (value/growth) exposure, it is similar. Analyzing additional factors, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. Compared with category peers, the strategy also had more exposure to the Volatility 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. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. In recent months, the strategy also had less Quality 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 technology by 4.9 percentage points in terms of assets compared with the category average, and its consumer defensive allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and communication services; however, the allocations are similar to the category. The strategy owns 11 securities and is relatively concentrated. In particular, 98.9% of the strategy's assets are housed within the top 10 holdings, as opposed to the typical peer's 49.5%. And finally, in terms of portfolio turnover, this portfolio's holdings turn over more often than comparable products in its peer group, possibly resulting in higher costs for investors and a drag on performance.

Average

Process

Day Hagan/Ned Davis Rsrch Smrt Sect ETF earns an Average People Pillar rating. The main contributor to the rating is the firm's five-year retention rate of 100%. Management team experience, which averages 14 years at this fund, also bolsters the rating. Lastly, 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 outperformed their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.


The management team is invested in the fund, but the maximum investment by any manager is between $100,000 and $500,000. An investment of more than $1 million would be ideal to align managers' interests with those of the fund's investors.

People

Day Hagan's track record as a steward is mixed, leading to an Average Parent Pillar rating. A source of strength is that the firm has been adept at retaining portfolio management talent, providing continuity for strategies, as proven by low turnover over the past five years compared with others in the industry. The firm tends to offer open-end and exchange-traded products at lower costs, a strength of the firm. On average, expenses for the firm's funds land in the second-cheapest quintile of category peers. The firm has not had a durable product lineup. Specifically, its three-year risk-adjusted success ratio demonstrates that only 0% of products were both able to survive and beat their respective category median on a risk-adjusted basis. A low success ratio indicates poor performance and raises questions about a firm’s discipline around investment strategy and product development.

Parent

Day Hagan/Ned Davis Research Smart Sector ETF

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