Weakness in Principal Healthcare Innovators ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's longest-tenured manager is experienced, but other weaknesses earn it 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.

Analyst Rating

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Moderna

Illumina

Exact Sciences

Sarepta Therapeutics

Natera

Catalent

Roivant Sciences Ltd

Cerevel Therapeutics Holdings Inc

Inspire Medical Systems Inc

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Principal Healthcare Innovators ETF earns a Low Process Pillar rating. 

The predominant detractor from the rating is the fund's weak 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 has struggled over that period. The parent firm's five-year risk-adjusted success ratio of 52% also holds the rating back. 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 subpar success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 76% limits the rating further.

 This strategy skews toward smaller, more growth-oriented companies compared with its average peer in the Health Morningstar Category. Analyzing additional factors, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. This contributes to a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility factor over 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 has allocations in its top two sectors, industrials and healthcare, that are similar to the category. The sectors with low exposure compared to category peers are basic materials and technology; however, the allocations are similar to the category. The portfolio is composed of 220 holdings and is less top-heavy than peers. Specifically, 21.8% of the portfolio's assets are concentrated within the top 10 fund holdings, compared to the typical peer's 38.7%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 57% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

Principal Healthcare Innovators ETF earns a Below Average People Pillar rating. The team is supported by the combined average five-year excess return of each manager, which shows that the funds they manage have outperformed an average manager. The instability of its management team limits the team. The fund last saw a manager change six months ago.


Aaron J. Siebel brings five years of listed portfolio management experience to the team. The strategies they currently manage have an average Morningstar Rating of 3.2 stars, demonstrating average risk-adjusted performance compared with category peers. Aaron J. Siebel has an experienced listed co-manager. Together, they average 14 years of listed portfolio management experience.

Below Average

People

Principal Asset Management follows client demand around the world and across asset classes. While the firm’s sensitivity to market trend can help better serve clients, its sprawling efforts have also led to mixed results. Its Parent rating remains Average.

The firm relies on multiple investment boutiques and teams to drive investment results, some of which have established solid records. Aligned Investors and Edge Asset Management run strategies that Morningstar analysts regard highly, and the real estate team also enjoys high ratings. While benefiting from Principal’s sales and operational support, these small teams invest and develop new strategies independently. On the other hand, Principal’s core fixed income and equity teams are less inspiring, and many of the actively managed exchange-traded funds launched recently by these teams have already been liquidated.

Principal continues to take steps to keep up with the competition, though execution risk exists amid all these efforts. It reorganized its data science team after a leadership departure with the goal of it work more closely with the firm’s investment teams. Principal has also been proactive in adding personnel and operational resources in its drive to build up its multi-asset solution and its liability-driven investing capabilities, and the firm continues to leverage its global presence to enter emerging markets.

Average

Parent

Principal Healthcare Innovators Index ETF

BTEC is actively managed to hold equities of small- and mid-cap healthcare firms in the US. The fund uses a proprietary, quantitative model to construct the portfolio.

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