Invesco AI and Next Gen Software 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 sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in yield exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. 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

Alphabet

NVIDIA

Adobe

Advanced Micro Devices

QUALCOMM

Intuitive Surgical

Micron Technology

Intel

Cadence Design Systems

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. Invesco Dynamic Software ETF earns a Below Average Process Pillar rating. The process is bolstered by tracking an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the rating is held back by 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 inferior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.8 stars, also holds the process back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the investment results (before fees and expenses) of the STOXX World AC NexGen Software Development Index.  The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is composed of securities of companies with significant exposure to technologies or products that contribute to future software development through direct revenue. The fund is non-diversified. 

 The portfolio is overweight in communication services and real estate relative to the category average by 10.5 and 3.5 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 10.0 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 99 holdings and is relatively top-heavy. Of the strategy's assets, 60.4% are concentrated within the top 10 holdings, as opposed to the typical peer's 52.4%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 190% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

Invesco Dynamic Software ETF benefits considerably from its equity team, earning it an Above Average People Pillar rating. There are four managers listed on the fund: Peter Hubbard, Tony Seisser, Michael Jeanette, Pratik Doshi. The team is well equipped, with an average of 12 years of portfolio management experience. Together, they manage a total of 145 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. This group has been working together for a while and has been successful in retaining talent compared to peers, with no departures in the last five years.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

Invesco succeeds in a number of areas but also has its share of subpar offerings, along with many others that land somewhere in the middle. A mid-2023 change of CEO, from longtime chief Marty Flanagan to veteran Invesco executive Andrew Schlossberg, is noteworthy, and several other executives retired or departed in 2023. Portfolio-manager shuffles aimed at bolstering poor performers, which began under Flanagan, have continued under Schlossberg, who told Morningstar his most important aim is bolstering “investment quality.” However, major changes of direction or approach are unlikely. The firm retains a Morningstar Parent rating of Average. 
Invesco’s international-equity teams in Texas and New York remain solid. However, the extensive U.S.-equity lineup needs improvement. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive. The firm’s exchange-traded fund lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 37% of Invesco’s assets under management. Invesco has not been averse to trying new types of strategies, and it was among the firms that immediately launched a spot bitcoin ETF after SEC approval in early 2024.
The picture outside the United States is mixed. Fund performance has been subpar in Asia, and while the picture has brightened in the United Kingdom and Europe, that region still can’t be considered a strength.

Average

Parent

Invesco AI and Next Gen Software ETF

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