ClearBridge Dividend Strategy ESG ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as People offset by weaker spots such as Process. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy gets a Below 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 strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Microsoft

Williams

Apollo Global Management

Comcast

Sempra Energy

JPMorgan Chase & Co

Becton, Dickinson and Co.

Visa

Linde

Travelers

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. ClearBridge Dividend Strategy ESG ETF earns a Below Average Process Pillar rating. 

The process benefits from the experience of the management team, which averages 20 years at this fund. However, the rating is weakened by its parent firm's subpar risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.5 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis. The parent firm's five-year risk-adjusted success ratio of 37% also weakens the process. 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.

 This strategy skews toward smaller, deeper value companies than its average peer in the Large Blend Morningstar Category. Looking at additional factor exposure, this strategy has consistently favored low-quality stocks compared with Morningstar Category peers over the past few years. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has an underweight bias to the volatility factor, meaning investing in stocks that have a lower standard deviation of returns. These low-risk stocks are typically at their best when markets are not. Low volatility exposure contributes to limited loss on the downside at the cost of a lag in bull markets. In recent months, the strategy also had less Volatility 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 basic materials and financial services relative to the category average by 7.5 and 5.0 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 11.2 and 5.7 percentage points of assets, respectively. The portfolio is positioned across 55 holdings and is less top-heavy than peers. Specifically, 33.2% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category average's 48.8%. And finally, in terms of portfolio turnover, on a year-over-year basis, 18% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

ClearBridge Dividend Strategy ESG ETF earns an Above Average People Pillar rating. The team is backed by Peter Vanderlee, the longest-tenured manager on the strategy, who brings 21 years of listed portfolio management experience. The strategies they currently manage have an average Morningstar Rating of 2.5 stars, demonstrating disappointing risk-adjusted performance compared with category peers. Peter Vanderlee has an experienced backdrop of support. The three listed managers boast 20 years of average listed portfolio management experience. As a team, they manage six investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. Portfolio managers have made only a small personal investment in the fund, with the maximum investment by any one manager being between $10,000 and $50,000. That isn't close to being enough to align their interests with those of the strategy's investors.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Above Average

People

Franklin Templeton Investments, the asset-management arm of publicly traded but family managed Franklin Resources BEN, has been busy with acquisitions. The struggle in streamlining these disparate capabilities underpins its Average Parent rating. 
Franklin’s July 2020 acquisition of multiboutique manager Legg Mason remains its largest as of March 2023, but the firm has continued to grow through acquisitions. Its April 2022 and November 2022 purchases of Lexington Partners and Alcentra, respectively, make it one of world’s largest managers of alternative investments (with alts comprising USD 231 billion of its USD 1.4 trillion assets under management as of December 2022), while its July 2022 acquisition of O’Shaughnessy Asset Management adds a novel direct-indexing capability to its managed account offerings. These purchases, however, do little to alleviate the operational complexity of a firm with dozens of investment teams split by asset class, region, and investment platform.   
Although there are several standout strategies at the firm, many teams have struggled with personnel turnover, succession challenges, and unappealing performance patterns. Shepherding these geographically disparate capabilities, which have varying levels of centralization of distribution and risk management, shall be quite the challenge for the firm to manage.

Average

Parent

ClearBridge Dividend Strategy ESG ETF

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