VictoryShares US Value Momentum ETF sports pronounced tilts to two tried-and-true risk factors, but its failure to control unrewarded sources of risk jeopardizes their impact. 
The Nasdaq Victory US Value Momentum Index, which this fund started tracking in November 2022, takes a selective approach that translates into sound factor exposure. The index measures large-cap stocks’ value and momentum traits against their sector peers, absorbs the 25% with the best combination of them, and weights holdings by their inverse volatility (favoring the sturdiest). Value and momentum have historically been tied to market-beating returns and normally work at different times. Favoring stocks with balanced exposure to both factors pushes the fund well into large-value territory and bends it toward momentum. 
While value and momentum equally drive stock selection, the fund’s exposure to the former trumps the latter. Measuring factors on a sector-relative basis makes it hard to channel momentum. Inverse volatility weighting favors smaller, cheaper holdings. That said, the fund showed stronger momentum exposure than 97% of large-value peers, according to the Morningstar Risk Factor Profile, giving it a leg up on fellow cheap portfolios whose holdings have been moving in the wrong direction. 
Since the fund picks a select few value and momentum stocks, firm-specific risks can overshadow the impact of factors and spark unpredictable performance. As of September 2023, the portfolio’s 125 holdings covered roughly 28% of the broad large- and mid-cap market. Just 23% of it overlapped with the Russell 1000 Value Index, its category benchmark. Factors drive stock selection, but the fund’s narrow scope means it must make good individual bets to reap the rewards, something it has not proven capable of thus far.

Analyst Rating

Valuable factor tilts can fade to the background.

Analyst

Ryan Jackson

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Loews

JPMorgan Chase & Co

CoreSite Realty

Kroger

Hartford Financial Services Group

Frank's

Duke Energy

General Dynamics

This fund’s momentum exposure is a unique advantage, but its narrow scope and consequent reliance on good stock-picking have prevented it from working the way it should. It earns an Average Process rating.

Average

Process

Victory Capital boasts a lean lineup of index-tracking funds managed by a fairly new team. Named managers Lance Humphrey and Mannik Dhillon have the savvy and capabilities 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 their 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 played a role in developing the underlying 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 funds’ 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

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