Strength in Principal Real Estate Active Opp ETF's People Pillar is partially offset by an Average Process Pillar rating, leading to a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy earns an 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 yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. 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

Ventas

Extra Space Storage

American Tower

Invitation Homes

Rexford Industrial Realty

Equinix

Sun Communities

American Homes 4 Rent

Welltower

Terreno Realty

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 Real Estate Active Opp ETF earns an Average Process Pillar rating. 

The main contributor to the rating is the experience of the management team, which averages 18 years at this fund. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also influence the rating. The pattern of low costs at the firm indicates that it is focused on delivering strong results for investors. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 52%. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy leans toward smaller, higher-growth companies than its average peer in the Real Estate 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. Such positions do not tend to provide much ballast for a portfolio. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. This strategy has also leaned away from the stocks of companies with high dividend or buyback yields over these years. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. Given the high trading volume of holdings, this fund also holds highly liquid assets. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, however, the strategy had less Liquidity factor exposure 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, real estate and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are financial services and industrials; however, the allocations are similar to the category. The strategy owns 23 securities and is about as top-heavy as the category average, with 59.2% of assets in the top 10 holdings. And finally, in terms of portfolio turnover, looking at year-over-year movements, 18% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

Principal Real Estate Active Opp ETF earns an Above Average People Pillar rating. Kelly D. Rush, the longest-tenured manager on the strategy, boasts over 25 years of listed portfolio management experience. The strategies they currently manage have an average Morningstar Rating of 3.0 stars, demonstrating average risk-adjusted performance compared with category peers. Kelly D. Rush has an experienced backdrop of support. The three listed managers boast 18 years of average listed portfolio management experience. As a team, they manage six investment vehicles together, with mixed prospects. The asset-weighted average Morningstar Medalist Rating across the strategies is Neutral. This means, in aggregate, they are not positioned to deliver positive alpha. Portfolio managers have made only a small personal investment in the fund, with the maximum investment by any one manager being less than $10,000. That isn't sufficient 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

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.

Parent

Principal Real Estate Active Opportunities ETF

BYRE is an actively managed, non-transparent fund that seeks total return by centering on US-listed companies in the real estate industry, selected using a bottom-up fundamental approach. The fund utilizes the Fidelity non-transparent model.

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OUTFRONT Media

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