Motley Fool Small-Cap Growth ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in momentum exposure and an overweight in volatility exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The management team invests alongside the strategy's shareholders, which helps it earn an Average People Pillar rating. The strategy's parent organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including overall low fees and a successful risk-adjusted track record.

Analyst Rating

Alarm.com

Axon Enterprise

Northern Oil and Gas

Shockwave Medical

Goosehead Insurance

Watsco

Gentex

Toast

Globus Medical

Leonardo DRS Inc

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. Motley Fool Small-Cap Growth ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The process is limited by the parent firm's five-year risk-adjusted success ratio of 25%. 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 modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy is similar to its Small Growth category peers in terms of market-cap and style exposure. Examining additional factor exposure, this strategy has had relatively low exposure to momentum stocks compared with Morningstar Category peers continually in the last few years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. In the latest month, the strategy was also less exposed to the Momentum factor compared with Morningstar Category peers. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned 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, however, the strategy had less Volatility factor exposure in the latest month. In addition, the portfolio has tended to underweight yield, as shown in its lower exposure to companies that pay dividends or buy back shares than peers over these years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide consistent income payments, they may cut payouts if their earnings fall. In recent months, the strategy also had less Yield 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 industrials and healthcare relative to the category average by 5.2 and 3.7 percentage points, respectively. The sectors with low exposure compared to category peers are basic materials and consumer defensive, with basic materials underweighting the average portfolio by 3.1 percentage points of assets and consumer defensive similar to the average. The strategy owns 37 securities and is relatively top-heavy. Of the strategy's assets, 37.2% are concentrated within the top 10 holdings, compared to the typical peer's 26.3%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 62% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

Motley Fool Small-Cap Growth ETF earns an Average People Pillar rating. The most significant contributor to the rating is the combined average five-year excess return of each manager, which indicates that the funds they manage have outperformed an average manager. A low cost, with fees that rank in its category's cheapest quintile, also contributes to the rating. Fees reduce net returns, so the managers have a lower expense hurdle to overcome. Lastly, the rating is limited by the parent firm's five-year retention rate of 71%, which suggests it could do more to keep its portfolio managers.


The team is backed by Nathan G. Weisshaar, the longest-tenured manager on the strategy, who provides 10 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.7 stars, demonstrating underwhelming risk-adjusted performance. Nathan G. Weisshaar has an experienced backdrop of support. The three listed managers boast 10 years of average listed portfolio management experience. The highest personal investment in the fund by any of its managers is between $100,000 and $500,000. That's on the low side--it would need to be more than $1 million for us to see the investment as sufficient to promote the strong alignment of their interests with the strategy's investors.

People

Motley Fool is an industry-standard asset manager, resulting in an Average Parent Pillar rating. One notable advantage of Motley Fool is its below-average fees. On average, the firm's open-end and exchange-traded fund fees fall in the lowest quintile of category peers. Motley Fool's risk-adjusted performance compares similarly to competitors. Across its open-end and exchange-traded funds, the firm’s average five-year Morningstar Rating is 3.3 stars, which is about standard. Motley Fool strategies have failed to have lengthy success. In particular, the firm's five-year risk-adjusted success ratio demonstrates that only 25% have both survived and beaten 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

Motley Fool Small-Cap Growth ETF

TMFS is an actively-managed portfolio of small-cap growth stocks. The fund seeks long-term capital appreciation.

Blackrock Flexible Income ETF

Blackrock US Equity Factor Rotation ETF

JPMorgan Equity Premium Income ETF

JPMorgan Nasdaq Equity Premium Income ETF

Engine No 1 Transform Supply Chain ETF

T.Rowe Price Small-Mid Cap ETF

Actively managed ETFs continue to gain traction. After a strong 2023, active ETFs gathered 34% of the net inflows in the first two months of 2024.

Another Strong Start For Active ETFs

Principal U.S. Small-Cap Multi-Factor Index ETF

ALPS Medical Breakthroughs ETF

AlphaMark Actively Managed Small Cap ETF

Invesco S&P SmallCap Momentum ETF

Wall Street's newfound bullishness on small caps reflects a notable shift in market dynamics, with several analysts predicting continued growth.

Inside Small-Cap's 3-Year Best Surge in Popularity: ETFs in Focus

iShares S&P Mid-Cap 400 Value ETF

Vanguard S&P Mid-Cap 400 Value ETF

SPDR S&P 400 Mid Cap Value ETF

Vanguard Mid-Cap Value ETF

Invesco S&P MidCap Quality ETF

While many Wall Street analysts were expecting a soft landing in the U.S. economy hurt by high inflation and rates, the latest view is that "rolling recession" is turning into "rolling expansion," per a top Wall Street economist, as quoted on MarketWatch.

Time for Mid-Cap Value ETFs to Capitalize on "Rolling Expansion"?

Janus Henderson Small/Mid Cap Growth Alpha ETF

Janus Henderson Small Cap Growth Alpha ETF

In the first half of 2023, U.S. small-cap stocks lagged behind the S&P 500. Still, these ETFs topped the S&P 500.

4 Small-Cap ETFs Beating the S&P 500 in 1H

News for Motley Fool Small-Cap Growth ETF ETF (TMFS)