Touchstone Dynamic International ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average 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 momentum exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And momentum exposure is rooted in holding stocks currently on a winning streak. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an 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

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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. Touchstone Dynamic International ETF earns an Above Average Process Pillar rating. 

The most important driver of the rating is the parent firm's five-year risk-adjusted success ratio of 63%. 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 size of the portfolio management team also strengthens the process. With three portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the parent firm's five-year retention rate of 60%, which suggests it could do more to hold onto its portfolio managers.

 This strategy leans toward smaller, higher-growth companies compared with its average peer in the Foreign Large Blend Morningstar Category. Looking at 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. This strategy has also demonstrated more exposure to high-momentum stocks over peers in recent years. Momentum strategies wager that market outperformers will continue to outperform, and laggards will continue to lag. Higher exposure to the former could mean the managers are overweighting stocks on winning streaks. Compared with category peers, the strategy also had more exposure to the Momentum 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 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. 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 financial services and consumer cyclical relative to the category average by 6.4 and 5.9 percentage points, respectively. The sectors with low exposure compared to category peers are consumer defensive and healthcare, underweight the average by 4.7 and 3.8 percentage points of assets, respectively. The portfolio is positioned across 117 holdings and is quite concentrated. More concretely, 23.9% of the portfolio's assets are housed within the top 10 holdings, as opposed to the category’s 15.7% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 125% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Touchstone Dynamic International ETF earns an Average People Pillar rating. Hal W. Reynolds’s veteran status, with 22 years of listed portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 3.2 stars, indicating that their risk-adjusted returns have been in line with the category average. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 13 years of 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.

 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.

Average

People

Touchstone Investments' recent moves and other characteristics support an Average Parent rating, up from Below Average.
Touchstone has made a few recent moves. As part of a portfolio manager retirement, it made a subadvisor and style change on one of its international funds, hiring value-oriented LSV in place of Fort Washington Investment Advisors, which remains its largest subadvisory partner. (Touchstone and Fort Washington are both subsidiaries of parent company Western & Southern Financial Group.) This change also includes a reduction in the fund's expense ratio. Touchstone is also merging another international fund into one run by Sands Capital and lowering expenses on the R6 share class of the acquiring fund. While manager changes and fund mergers can be disruptive to investors, they are also often a response to poor long-term performance or small asset bases. Lower fees, though, are always a positive.
These moves acknowledge the competitive nature of the fund industry. To grow in this environment, Touchstone has firmly staked its ground on providing funds and exchange-traded funds that are "distinctively active." The firm deserves credit for a consistent and well-codified approach to manager research. A small investment team evaluates new managers and existing ones along five areas it thinks lead to outperformance: organizational stability, personnel, investment discipline, firm infrastructure, and results. Although Touchstone often makes investment-style and portfolio-manager changes to funds it has acquired—it has made two substantive acquisitions in the past five years—overall a patient mindset has resulted in long-term relationships with many subadvisors even when short-term performance is weak.

Parent

Touchstone Dynamic International ETF

Telephone & Data Systems, Inc. engages in the provision of wire line and cable broadband, video and voice services. It operates through the following segments: U.S. Cellular, Telephone and Data Systems (TDS) Telecom’s Wireline and Cable. The U.S. Cellular segment provides service to postpaid and prepaid customers from a variety of demographic segments. The TDS Telecom’s Wireline segment operates Wireline and Cable subsidiaries that provide communications services. The Cable segment provides interconnected voice over internet protocol and broadband services, including internet access. The company was founded by LeRoy T. Carlson in 1968 and is headquartered in Chicago, IL.

TDI is an actively managed fund that invests in non-US companies from around the globe selected using a proprietary quantitative model.

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Reuters recently reported that a record 478 new ETFs were launched in the United States in 2023 through Dec. 7. Of the funds launched in 2023, 76% were active ETFs, according to Morningstar Direct data.

New Kids on the Block: 3 Just-Launched Active ETFs to Consider for 2024

The Touchstone Dynamic International ETF is Sub-advised by Los Angeles Capital Management CINCINNATI , Dec. 12, 2023 /PRNewswire/ -- Touchstone Investments, known for its Distinctively Active® mutual funds and exchange traded funds (ETFs), today announced the launch of the Touchstone Dynamic International ETF (TDI: NASDAQ), an actively-managed, fully-transparent ETF that seeks to invest in equity securities of non-U.S. companies domiciled in both developed and emerging markets, which began trading on December 11, 2023. Touchstone Investments launches dynamic international ETF to expand global exposure.

News for Touchstone Dynamic International ETF ETF (TDI)