A sound investment process and strong management team underpin Invesco CEF Income Composite ETF's Morningstar Medalist Rating of Bronze. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in the Europe-Developed region and an overweight in developed markets regions compared with category peers. 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, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. Invesco CEF Income Composite ETF earns an Above Average Process Pillar rating.  The most meaningful contributor to the rating is the fund's excellent long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 42%. 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 modest success ratio suggests that the firm could do better across its fund lineup.

 The investment strategy as stated in the fund's prospectus is as follows: 

 The investment seeks to track the investment results (before fees and expenses) of the S-Network Composite Closed-End Fund IndexSM.  The fund generally will invest at least 90% of its total assets in the components of the index. It is a “fund of funds and ” meaning that it invests its assets in the common shares of funds included in the index rather than in individual securities. The index is designed to measure the overall performance of a universe of U.S.-listed closed-end funds that are organized under the laws of the United States and are principally engaged in asset management processes designed to produce taxable annual yield.  

 The portfolio is overweight in technology and healthcare relative to the category average by 10.7 and 8.8 percentage points, respectively. The sectors with low exposure compared to category peers are real estate and industrials, underweight the average by 7.0 and 3.4 percentage points , respectively. The portfolio is overweight in North America by 21.7 percentage points compared with the category average, and Emerging Europe's allocation is similar to its peers. The regions with low exposure compared to their category peers are Developed Europe and Japan, underweight the average by 6.6 percentage points and 5.5 percentage points, respectively.

 The fund’s bond allocation takes on less interest rate risk as the fund’s average duration is 3.6 years, to the category average’s 4.4 years.

Above Average

Process

Invesco CEF Income Composite ETF benefits considerably from its allocation team, earning it an Above Average People Pillar rating. There are four managers listed on the fund: Michael Jeanette, Peter Hubbard, Tony Seisser, Pratik Doshi. Experience on the team is abundant, with 12 years of average portfolio management experience. Together, they manage a total of 144 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 had relatively low management turnover, providing a stable environment and continuity for the strategies. 

 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.

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 CEF Income Composite ETF

PCEF tracks an index of three types of yield-focused closed-end funds: investment-grade fixed-income, high-yield fixed-income, and option-writing. Larger CEFs and those that trade at discount receive higher weights.

Invesco CEF Income Composite ETF is based on the S-Network Composite Closed-End Fund Index and focuses on producing attractive yields. PCEF charges a high total expense ratio of about 3% due to fees of the underlying funds held. PCEF's performance has been disappointing with annualized returns of 6% over the long run, and there are better performing alternatives available at significant discounts to NAV.

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Invesco CEF Income Composite ETF offers diversified exposure to income-producing closed-end funds with a strong 10.1% yield. Saba Closed-End Funds ETF has a stronger performance track record, due to savvy investment decisions and activist campaigns, making it my preferred choice over PCEF. An overview of PCEF, and a comparison to CEFS, follows.

Consider Selling PCEF And Buying CEFS Instead

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Invesco CEF Income Composite ETF is a fund of funds with 114 holdings and a 12-month distribution yield of 9.97%. PCEF's performance has lagged behind its competitor CEFS and has experienced a downtrend in both price and distribution. PCEF may not be a good long-term investment for preserving income and capital, but it may be useful for tactical allocation and swing trading.

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