Invesco Preferred ETF earns a Morningstar Medalist Rating of Negative 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 lowest fee quintile among peers.  

 The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and an underweight in A rated bonds 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. 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

Invesco Preferred ETF earns a Low Process Pillar rating. 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. The main driver of the rating is the fund's mediocre 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 retention rate of 67% also holds the rating back. The parent firm's five-year risk-adjusted success ratio of 39% further detracts from the process. 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 investment strategy as stated in the fund's prospectus is: 

The investment seeks to track the investment results (before fees and expenses) of the ICE BofA Core Plus Fixed Rate Preferred Securities Index.  The fund generally will invest at least 80% of its total assets in the components of the index. Strictly in accordance with its guidelines and mandated procedures, ICE Data Indices, LLC selects securities for the index, and which is a market capitalization-weighted index designed to measure the performance of the fixed rate U.S. dollar-denominated preferred securities market.  

 This strategy has a 6.5% 12-month yield, higher than its average peer's 6.1%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 6.2%. Higher yields tend to indicate higher credit risk.

Process

Invesco’s equity team is strong compared with others in the industry, resulting in an Above Average People Pillar rating. There’s a sizable bench of five managers listed on the fund. Together, they manage a total of two strategies, with disappointing prospects. Across the strategies they manage, there is an asset-weighted average Morningstar Medalist Rating of Negative. This indicates the team is projected 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.

Above Average

People

Invesco, with USD 1.3 trillion in AUM, tries to cover a great many bases. The firm succeeds in a number of areas but also has its share of subpar offerings, along with many others somewhere in the middle. The firm retains a Morningstar Parent rating of Average.
Invesco is now 3.5 years past the closing of its merger with OppenheimerFunds. While there were some glitches, overall the process avoided the pitfalls that can accompany such corporate actions. On the positive side, Invesco’s international-equity teams—its EQV team in Texas and the New York-based group inherited from Oppenheimer—remain strong points. The firm’s ETF lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 30% of Invesco’s AUM. 
However, the extensive U.S.-equity lineup remains a weak link despite manager shuffles aimed at bolstering poor performers. The retirement of Meggan Walsh, who managed the relatively few appealing offerings in that group, didn’t help. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive.
Invesco has a substantial presence outside the U.S., but fund performance has been subpar in Asia, with manager turnover an ongoing concern. In the U.K. and Europe, the picture has brightened, but that region still can’t be considered a strength.

Average

Parent

Invesco Preferred ETF

PGX tracks an index of fixed rate USD-denominated preferred securities.

Invesco Preferred ETF is mainly a financial ETF exposed to preferred shares, with a dominant exposure to the banking sector. The condition of national banks is pretty good in the U.S., especially as they absorb deposits from regional banks with relatively better ability to offer attractive rates. While short-term interest rates may be settling down, long-term rates are a concern for preferred investors, as changes in these rates can significantly impact the value of preferred shares.

PGX: Duration And Deglobalization Aren't A Great Combo

The Invesco Preferred ETF offers a steady stream of income with potential for capital appreciation through fixed-rate US dollar-denominated preferred securities. PGX's portfolio is concentrated in the financial and utilities sectors, with holdings from reputable institutions such as JPMorgan Chase and Wells Fargo. While PGX has consistently delivered dividends, its performance has been underwhelming compared to peers, and there are risks associated with investing in the fund.

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Investors looking for yield frequently focus only on common stocks. Preferred stocks can provide a steady dividend income because companies are less likely to reduce dividends on preferred stocks than they are common stocks.

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The Invesco Preferred ETF holds over 300 preferred share issues, with 95% coming from the United States. The fund uses a "sampling" methodology and does not own all the securities in the index.

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Long-term rates have been skyrocketing and the Treasury bond market crashing. Investors should pay attention to the bond market crash because it may proceed to another crash in risk assets such as stocks, preferred equities, and junk bonds.

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Getting fixed income returns in today's interest rate environment has proved to be an ongoing challenge. With the risk dial turned up by most investors, high-risk bonds aren't the only option available.

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Income-minded investors who are looking for ways to enhance their yield generation in a lower-for-longer rate environment can consider preferreds-related exchange traded funds for more attractive opportunities. The Invesco Preferred ETF (PGX) “is a safe fund that largely invests in preferred securities that are highly rated by Moody's, S&P, and Fitch,” Michael A.

News for Invesco Preferred ETF ETF (PGX)