VictoryShares International Value Momentum ETF UIVM targets stocks with a strong combination of value and momentum characteristics. But it focuses on a small subset of the investable universe that can derail its performance, and it has yet to prove that the risks it takes will be adequately rewarded.

This exchange-traded fund tracks the Nasdaq Victory International Value Momentum Index. The underlying strategy targets stocks that exhibit strong exposure to the value and momentum factors. It scores each stock in the Nasdaq Developed Markets Ex United States Large Mid Cap Index by their value and momentum characteristics relative to sector peers. Sector-level comparisons allow the fund to better assess each stock's value characteristics with others in similar industries. This is a reasonable approach, but it can weaken the portfolio's exposure to those with strong momentum, given that momentum is a free-range factor that tends to roam across sectors over time.

Each stock is ranked using an equal combination of its value and momentum scores. The portfolio pulls in the top 25% of stocks based on their combined exposure to the value and momentum risk factors. Winnowing the universe down to a select few stocks may help it focus on those with the strongest factor characteristics. But this amplifies the portfolio's active risk, which can lead to unpredictable performance. Furthermore, the strength of the portfolio's risk factor exposures can change meaningfully over time, which further adds to its active risk and may cause it to miss out on some of their benefits.

Overall, the fund has gravitated toward the value side of the Morningstar Style Box. Its exposure to the momentum factor is weaker but still has the potential to provide a benefit. Emphasizing stocks with strong momentum should keep the portfolio away from those that may have further to fall.

So far, the fund has struggled against the MSCI ACWI ex USA Value. It underperformed that bogy by roughly 1.4 percentage points per year from its late October 2017 inception through the end of September 2023.

Analyst Rating

A multifactor strategy that leans toward value.

Senior Analyst

Daniel Sotiroff

DTE Energy

Ormat Technologies

Shell PLC

Arcosa Inc

Allergan

TotalEnergies SE

ING Group 6.2 % Perpetual Debt Secs 2003-Without Fixed Called for red.on 16.10.17 at USD 25

Tractor Supply

Banco Bilbao Vizcaya Argentaria

GlaxoSmithKline

This strategy targets stocks with strong value and momentum characteristics. The strength of those traits can change over time, and other unintentional risks may influence its performance more than either of those factors. It earns an Average Process Pillar rating.

Average

Process

Victory Capital boasts a relatively lean lineup of index-tracking funds managed by a recently built team. Named managers Lance Humphrey and Mannik Dhillon have the savvy and capability to effectively track the index but lack the resources and specialization of larger competitors. The fund earns an Average People Pillar rating.

State Street's index portfolio management team subadvised this fund until June 2019, when Victory Capital brought management in-house following its acquisition of USAA's asset-management business. Dhillon was named manager when the fund changed hands, but Humphrey has been there since its genesis. He collaborated with MSCI to develop the benchmark index and has managed the fund since its inception. His proximity to the strategy can aid index-tracking, especially around rebalances.

Humphrey and Dhillon oversee a portfolio implementation team that handles day-to-day operations. This group leverages an array of platforms to anticipate index changes, handle corporate actions, and monitor risk. They construct trades and send them to Victory's Cleveland-based trading desk for execution.

Victory evaluates index portfolio managers' performance with a holistic rubric that aligns their interests with investors'. Criteria include each fund's benchmark-relative tracking difference and contributions to process improvements. The management team is subject to independent risk oversight.

People

As Victory Capital Management expands a roster of investment teams that runs the gamut,  it retains an Average Parent rating.

Victory operates a multiaffiliate model. It centralizes operations, compliance, and distribution while giving its 12 franchises investment autonomy. The franchise lineup had long been composed of those primarily focused on small/mid-cap equities. But the 2019 acquisition of fixed-income shop USAA Investments (which was rebranded as Victory Income Investors in April 2023) represented a significant change to that model. The firm has continued to broaden from there, acquiring three new franchises since the start of 2021: THB Asset Management (an environmental, social, and governance specialist), New Energy Capital (an alternatives manager), and WestEnd Advisors (a third-party model strategist). Overall, Victory is as big and diverse as ever: Its assets under management as of March 2023 was $157.6 billion, much higher than the $52.8 billion level as of December 2018.

Victory’s bright spots include Sycamore Capital and Trivalent Investments, which boast strong investment cultures, good levels of manager ownership, and solid capacity management processes. But there are questions elsewhere. Victory Capital Solutions has made some questionable subadvisor changes and dubious exchange-traded fund launches in recent years; Victory Income Investors has seen several departures since the 2019 acquisition and will absorb another franchise, Incore, in September 2023.

Parent

USAA MSCI

UIVM tracks a multi-factor-selected, volatility-weighted index of stocks from developed economies outside of the United States.

UIVM leverages an index-based strategy, favoring reasonably priced ex-U.S. developed-world names with momentum characteristics. The ETF offers exposure to notable overseas value/momentum stories, mostly from Japan, but its past performance suggests the strategy is not as powerful as it might seem. Despite being overall constructive on UIVM, I would still stop short of a bullish thesis.

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SAN ANTONIO--(BUSINESS WIRE)--Victory Portfolios II today announced plans to transfer the listing of six ETFs from NYSE to Nasdaq on or around November 1, 2022.

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Momentum—once it picks up, it can be difficult to stop and while the debate in the capital markets is whether value can sustain its lead over growth, investors can’t forget about the momentum factor, especially if events like a U.S.-China trade deal can spark a year-end rally.

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News for USAA MSCI ETF (UIVM)