Columbia EM Core ex-China ETF retains its Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the cheapest 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 quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

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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. Columbia EM Core ex-China ETF earns an Above 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 process was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 50%. 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 relatively low 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 to the price and yield performance of the Beta Thematic Emerging Markets ex-China Index.  The fund will invest at least 80% of its net assets in the companies included in the index and the advisor generally expects to be substantially invested at such times, with at least 95% of its net assets invested in these securities. The index is a free-float market capitalization-weighted index designed to provide broad, core emerging markets equity exposure by measuring the stock performance of 700 emerging markets companies, and excluding companies domiciled in China or in Hong Kong. It is non-diversified. 

 The portfolio is overweight in technology and financial services relative to the category average by 4.8 and 4.5 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and healthcare, underweight the average by 7.3 and 2.7 percentage points of assets, respectively. The strategy owns 314 securities and is quite concentrated. In particular, 30.9% of the portfolio's assets are housed within the top 10 holdings, as opposed to the category average of 25.3%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 19% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Columbia Threadneedle’s team receives a Below Average People Pillar rating. The team is strengthened by the strategy's fees, which rank in its category's cheapest quintile. Fees reduce net returns, so the team has a lower expense hurdle to overcome. However, the rating is limited by the parent firm's five-year retention rate of 67%, which suggests it could do more to hold onto its portfolio managers. The parent firm's five-year success ratio of 49% also detracts from the team. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

Below Average

People

Columbia Threadneedle is undergoing significant transitions on the personnel and operational fronts, underpinning an Average rating.

Colin Moore, Columbia CIO for nearly 20 years, retired at the end of 2021; William Davies, who had been CIO of global equities, replaced him. Moore had worked over the past several years to promote collaboration across his investment teams, including compelling portfolio managers to work with a centralized research pool and to act within consistent risk guardrails. The firm also made moves to streamline its product offerings, including merging or liquidating 28 strategies from January 2020 through March 2022.
These are sensible efforts, though there remain ongoing areas of uncertainty for Davies and CEO Ted Truscott to navigate. Though the firm's fixed-income team is mostly stable, its domestic-equity team has struggled for years with elevated turnover. Adding to this complexity, Columbia closed on its acquisition of Bank of Montreal's European investment business in November 2021, gaining numerous new U.S., U.K., and European-domiciled equity strategies, a compelling environmental, social, and governance capability, and a staff of 700 people. Though there are opportunities for Columbia to draw additional resources and capabilities from BMO, including specialists such as Pyrford International, it will take time to assess how these two firms mesh as a combined entity.

Average

Parent

Columbia EM Core ex-China ETF

XCEM tracks a market-cap-weighted index that provides broad equity exposure to emerging markets excluding China.

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