2 attractive ETFs newly rated by Morningstar
We recently expanded our coverage with 2 ETFs earning Gold and Silver Medallist ratings.
Morningstar increased our coverage this week with an additional 342 Funds and ETFs rated by our analysts. We added 13 new ETFs to our coverage universe bringing the total to 105.
This is the first of phase of a three-part rollout of increased coverage with the subsequent phases taking place on October 1st and November 1st.
For more on selecting ETFs read our step by step process for choosing an ETF. Two of the newly rated ETFs received a Gold and Silver Medallist Rating.
iShares S&P Mid-Cap ETF (ASX: IJH)
IShares Core S&P Mid-Cap ETF IJH effectively combines a broadly diversified portfolio of U.S. mid-cap stocks with low turnover and a minuscule price, providing it with a durable edge over its Morningstar Category peers and earning a Gold rating from our analysts.
The fund tracks the S&P MidCap 400 Index, which is a market-cap-weighted basket of 400 mid-cap stocks that land between the 85th and 95th percentiles of the total U.S. stock market capitalization. An index committee has discretion over selecting stocks that meet certain liquidity, size, and profitability thresholds.
Mid-cap stocks can take a variety of shapes. Some are companies with established business models and sound financials but lag large-cap stocks because they are not industry leaders. Others are smaller firms whose growth prospects come with volatile performance.
The fund effectively diversifies risk and tames concentration. Assets in the top 10 holdings constitute only 6.3% of the portfolio, 9.9 percentage points lower than the average mid-cap blend fund. In addition, it accurately mimics the complexion of its average peer in the mid-cap blend Morningstar Category in style and sector allocations. No sector deviates by more than 5 percentage points from the category average. These qualities emphasize the fund’s cost advantage in driving category-relative performance.
The fund’s 0.05% annual fee gives it a durable performance edge over category peers. Since its 2000 inception, the fund has outperformed its average peer by 1.87 percentage points annualized.
VanEck Morningstar Australia Mt Inc ETF (ASX: DVDY)
VanEck Mrnngstr Aust Mt Inc ETF’s management team is average, but a solid investment process still helps this strategy retain 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 sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and an underweight in volatility exposure compared with category peers.
High quality exposure is attributed to stocks with low financial leverage and strong returns on equity. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. The team managing the passive strategy earns the strategy an Average People Pillar rating.
The VanEck investment team is under the stewardship of seasoned industry professional Russel Chesler, alongside deputy Jamie Hannah. The duo is supported well by two VanEck long-timers: Cameron McCormack and Alice Shen. Over the past two years, their responsibilities have significantly expanded. In addition to spearheading investment analytics, trade execution, and fund operations, McCormack and Shen have assumed active roles in driving firmwide thought leadership and stewardship initiatives, correspondingly. Keeping in view McCormack and Shen’s expanded roles, and the firm’s growth prospects, VanEck hired two associates, Daniel O’Connell and Pranay Lal, taking the total tally in the investment team to six. Despite the expansion, VanEck’s investment team size is discernibly smaller than some of the passive behemoths, but the team has been relatively stable. Capacity has not been an issue so far, and indexing capabilities are strong, as most portfolio management activities and processes are automated and are capably managed by the current team.
This strategy tends to hold smaller, higher-growth companies than its average peer in the Equity Australia Large Value Morningstar Category. Analysing additional factors, this strategy has consistently had a defensive tilt owing to its exposure to high-quality stocks over the past few years. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well.
This strategy has also tilted toward low-volatility stocks in recent years, meaning those 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. Compared with category peers, however, the strategy had more exposure to the Volatility factor in the most recent month. Additionally, the strategy has demonstrated a contrarian approach with relatively low exposure to momentum stocks during these years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term.
As top performers change, this can sometimes be hard to capture without higher trading costs. In recent months, the strategy also had less Momentum 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 industrials and financial services relative to the category average by 13.8 and 12.5 percentage points, respectively. The sectors with low exposure compared to category peers are basic materials and energy, underweight the average by 17.2 and 8.4 percentage points of assets, respectively. The portfolio is composed of 26 holdings and is similarly diversified as peers, with 42.5% of portfolio assets concentrated within the top 10 holdings.
For more on quality ETFs listen to our podcast episode of Investing Compass on quality ETFs.