The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  Invesco Emerging Markets Sov Debt ETF to a Morningstar Medalist Rating of Negative.  The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in corporate bonds and debt with one- to three-year maturities compared with category peers. The strategy’s management team earns an 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

Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. Invesco Emerging Markets Sov Debt 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 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 subpar success ratio suggests that the firm could do better across its fund lineup. Subpar risk-adjusted performance also weakens the process. This can be seen in the fund's five-year alpha calculated relative to the category average, which suggests that the process has struggled over that period.

 Compared with other funds in the Emerging Markets Bond Morningstar Category, this fund has been consistently more sensitive to interest-rate changes over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been significantly underweight corporate bonds in recent years. In the latest month, the strategy has also relatively underweighted corporate debt compared with Morningstar Category peers. Additionally, there's been a notable bias away from debt with one- to three-year maturities over the past few years. Similarly, in recent months, the strategy also had less exposure to debt with one- to three-year maturities than peers. Finally, during the past few years, the fund leaned meaningfully towards B rated bonds. In this month, the strategy also leaned more towards B rated bonds compared with its peers.

 This strategy's 12-month yield is 6.7%, higher than its average peer's 5.9%. It also has a 7.3% 30-day SEC yield (a measure similar to yield-to-maturity). While a higher yield may deliver more income, it also tends to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

Below Average

Process

Invesco’s fixed income team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There are four managers listed on the fund: Gary Jones, Richard Ose, Peter Hubbard, Greg Meisenger. The team is well equipped, with an average of 11 years of portfolio management experience. Together, they manage a total of three strategies, with a Negative asset-weighted average Morningstar Medalist Rating, indicating the team is positioned to generate negative alpha relative to the category median in aggregate.  

 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.

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.

Parent

Invesco Emerging Markets Sovereign Debt ETF

PCY tracks a tier-weighted index of US-dollar-denominated sovereign debt in emerging markets with at least 3 years to maturity.

Lauded for their yield, emerging markets (EM) bonds could be a compelling option even when taking credit risks into account. The macroeconomic environment in particular adds intrigue to funds like the Invesco Emerging Markets Sovereign Debt ETF (PCY).

Abating Risks in Emerging Markets Adds Intrigue to Bonds

Amid expectations that the Federal Reserve will reduce interest rates this year — perhaps multiple times, — there's renewed interest in U.S. bonds, both corporate and Treasuries. However, fixed income investors shouldn't take their eye of the international ball.

Investors Renew Interest in Emerging Markets Bonds

Invesco Emerging Markets Sovereign Debt ETF is a high-risk investment due to its exposure to non-investment grade bonds and sensitivity to interest rates. The fund has a relatively high expense ratio compared to its peers, potentially impacting investor returns. Risks include potential defaults by issuing governments, the impact of a stronger U.S. dollar, and a global credit event.

PCY: Way Too Risky Now And Better Options Anyway

An improving macroeconomic landscape could be providing opportunities in emerging markets (EM) debt. It's an option worth considering, especially if the fixed income goal is to pair yield with growth.

Pair Yield and Growth With This Emerging Markets Bond ETF

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Emerging markets can come with a lot of growth potential. However, they also usually have more volatility than you might get with developed markets.

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Uncertainty around interest rates, inflation, and the possibility of recession are top of mind as advisors allocate to fixed income ETFs. Most investors are staying within the short to intermediate part of the curve, opting for balanced fixed income exposure as opposed to making big bets.

Which Fixed Income ETFs Stand Out in the Current Environment?

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Invesco has six non-core fixed income ETFs that advisors can add to portfolios to create alpha opportunities and increase portfolio diversification. Exposure to non-core fixed income is important as the largest U.S. bond index only provides exposure to approximately 40% of the U.S.

Use Invesco's Non-Core Fixed Income ETFs to Enhance Returns

PCY invests in sovereign bonds in the emerging markets. Sovereign debt default rates will likely remain elevated in 2023.

PCY: The Worst Has Yet To Come

PCY invests heavily in below investment grade government bonds with relatively high duration. Its portfolio isn't properly diversified. PCY failed to generate attractive total return for its investors, and undertook risks that are disproportionate to its coupon income.

PCY: Risky Investment In Below Investment Grade Sovereign Bonds

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SPDR Bloomberg Emerging Markets USD Bond ETF

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VanEck J.P Morgan EM Local Currency Bond ETF

SPDR DoubleLine Emerging Markets Fixed Income ETF

iShares MSCI Poland ETF

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First Trust Brazil AlphaDEX Fund

First Trust Emerging Markets Local Currency Bond ETF

Franklin FTSE Brazil ETF

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JPMorgan USD Emerging Markets Sovereign Bond ETF

iShares J.P. Morgan EM Local Currency Bond ETF

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Central banks across emerging markets have reacted to elevated inflation by significantly tightening monetary policy, in some cases, well ahead of the U.S. Federal Reserve and the European Central Bank. After largely synchronized rate-hiking cycles across EM, monetary policies could once again begin to diverge among individual countries.

Peak Inflation May Hint At Peak Rates In Emerging Markets

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Falling inflation in many developing economies, cheaper valuation and higher yields may boost some emerging markets ETFs.

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In emerging markets valuations look attractive today after the losses across financial markets early this year. PIMCO's investment process is founded upon our macroeconomic outlook and our in-house country and credit research.

Spotting Opportunities And Risks Across The EM Investment Universe

As the markets rebound, fixed-income investors can consider picking up some emerging market bond-related exchange traded funds. Morgan Stanley strategists led by Simon Waever advised in a note that should consider emerging market debt, making a bullish stance on the asset category for the first time since November 2020, Bloomberg reports.

Emerging Market Bond ETFs Are on the Mend

With the Federal Reserve raising interest rates and the potential for the pace of that tightening to increase, it's understandably difficult for investors to be enthusiastic about fixed income assets. That's certainly true of emerging markets bonds and the related exchange traded funds — assets with established track records of faltering as U.S. interest rates [.

This Emerging Markets Fund Could Surprise as Fed Boosts Rates

PCY is down more than -16% since our article came out. The fund has been routed by the higher 10-year yields and the current Ukraine conflict implications.

PCY - Moving From Sell To Hold After The Rout

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Performance of emerging markets local currency bonds has been negatively impacted by the U.S. dollar's strength since mid-year, despite the higher real yields and upside growth surprises in many emerging markets. Currency returns can be volatile, and external factors can have a bigger short-term impact on an emerging markets currency (EMFX) even if relatively attractive fundamentals may provide longer-term support.

Technical Tailwinds May Lift EMFX

El Salvador is set to make Bitcoin a legal form of currency, and ETF investors can get exposure to the country via its bonds through the Invesco Emerging Markets Sovereign Debt ETF (PCY). As such, the leading cryptocurrency is generating activity within social media spheres.

Get El Salvador Exposure With This ETF After Country Legalizes Bitcoin

PCY is a sovereign EM hard currency debt fund with a 4.42% 12-month yield.

PCY - A High Duration, High Fee Fund Best Revisited When Rates Are Higher

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Emerging markets offer attractive alternatives to fixed income investors searching for yield amid the trillions of dollars of negative-, zero-, and low-yielding debt globally. Within emerging market hard currency investment grade bonds, we think it is prudent to be shorter duration or at least hedge the Treasury risk component, given the low yield per unit of duration today.

3 Segments, Multiple Opportunities In Emerging Markets

Historically, low domestic rates and accommodative central bank policy have highlighted international assets like the Invesco Emerging Markets Sovereign Debt ETF (PCY). PCY is based on the DBIQ Emerging Market USD Liquid Balanced Index.

Q2's Case for Emerging Market Bond ETFs

Investors are still disappointed with many income-generating assets as interest rates remain low, but with the dollar weak, emerging markets debt is growing increasingly appealing. Enter the Invesco Emerging Markets Sovereign Debt ETF (PCY).

U.S. Bonds Still Disappoint. But EM Debt ETFs Are Going Strong

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EMs have suffered a lot amid the pandemic. Undervaluation, better growth prospects, massive Fed rate cut, higher interest rates in EMs have opened up opportunities for EM ETFs now.

Time for Emerging Market ETFs?

Prospects for disinflation in the emerging market economies are likely to boost EM bond ETF inflows as reflationary trend may hurt U.S. bond market.

Disinflation in Emerging Markets? Buy EM Bond ETFs

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Getting more than broad-based bond exposure doesn't mean investors have to deep dive into the debt market. They can start with three ETFs from Invesco that are seeing heavy average daily volume.

Looking For Bonds? 3 Prescient ETFs from Invesco

While yields might be creeping higher in benchmark U.S. Treasuries, it might not be enough to satiate fixed income investors' appetite. That said, it's a good time to seek yield in other parts of the world, such as emerging markets (EM), via the Invesco Emerging Markets Sovereign Debt ETF (PCY).

News for Invesco Emerging Markets Sovereign Debt ETF ETF (PCY)