Motley Fool Next 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 least expensive fee quintile among peers.  

 The strategy's investment process inspires confidence and earns 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 momentum exposure and quality 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 a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall reasonable fees and a strong risk-adjusted track record. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

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Axon Enterprise

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 Next Index ETF earns an Above Average Process Pillar rating. The primary contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's impressive risk-adjusted performance, as shown by its average overall Morningstar Rating of 3.3 stars, also strengthens the process. Lastly, 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 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 investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that correspond (before fees and expenses) generally to the total return performance of the Motley Fool Next Index.  The index is a proprietary, rules-based index designed to track the performance of mid- and small-capitalization U.S. companies that have been recommended by TMF’s analysts and newsletters. Under normal circumstances, and at least 80% of the fund’s total assets (exclusive of any collateral held from securities lending) will be invested in the component securities of the index. It is non-diversified. 

 The portfolio is overweight in technology and consumer cyclical relative to the category average by 9.8 and 5.7 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and industrials, underweight the average by 7.2 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 197 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 15.9% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category average's 25.9%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 27% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Motley Fool’s team receives An Average People Pillar rating. The main contributor to the rating is the combined average five-year excess return of each manager, which shows that the funds they manage have outperformed an average manager. A low cost, with fees that rank in its category's cheapest quintile, also improves the rating. Fees reduce net returns, so the managers have a lower expense hurdle to overcome. Lastly, the rating is limited by the turnover of talent across its parent firm. The firm's asset-weighted manager tenure of seven years suggests it could do more to retain portfolio managers.

Average

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 Next Index ETF

TMFX tracks a market-cap-weighted index of mid- and small-cap US companies recommended by Motley Fools analysts and newsletters, excluding the 100 largest securities in the pool.

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