The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Principal US Small Cap ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The longest-tenured manager is experienced, but other weaknesses limit the strategy to a Below Average People Pillar rating. The strategy gets an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and has an overweight in volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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

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Houlihan Lokey

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. Principal US Small Cap ETF earns an Average Process Pillar rating. 

The leading factor in 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 index, which suggests that the managers have shown skill in their allocation of risk. The process is limited by the parent firm's five-year risk-adjusted success ratio of 47%. 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 modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy leans toward smaller, more undervalued companies compared with its average peer in the Small Blend Morningstar Category. Looking at additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. This is a higher-risk, higher-reward approach. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. In addition, this strategy has not maintained a defensive tilt, demonstrated by low exposure to the quality factor. This means the fund avoids holding firms that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. In recent months, the strategy also had less Quality factor exposure than 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, healthcare and energy, that are similar to the category. The sectors with low exposure compared to category peers are industrials and real estate; however, the allocations are similar to the category. The portfolio is positioned across 532 holdings and is less top-heavy than peers. Specifically, 8.9% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category’s 24.1% average. And in closing, in terms of portfolio turnover, this portfolio trades more frequently than the average peer in its category, which may result in higher trading costs for investors and cause a drag on performance.

Average

Process

Principal US Small Cap ETF earns a Below Average People Pillar rating. The team benefits from the strategy's fees, which rank in its category's least costly fifth. Fees detract from net returns, so the team has a lower expense hurdle to overcome. However, the rating is weakened by the parent firm's five-year success ratio of 46%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

Below 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 U.S. Small-Cap Multi-Factor Index ETF

PSC is actively managed to invest in small-cap US companies. The fund uses a proprietary, quantitative model to construct the portfolio.

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The week ending June 30 was marked by some key launches and a continued stream of ETF closures. In all, the ETF industry gained 13 new products.

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These riskier funds pulled in more than $2 billion last month.

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Exchange traded fund investors who are looking to reposition for the market ahead should consider the compelling cyclical opportunities in the small-cap space. In the recent webcast, Re-thinking the equity equation: Take another look at small caps, Todd Jablonski, Chief Investment Officer, Principal Global Asset Allocation, warned that divergent COVID-19 experiences drive de-synchronized global growth.

A Smart ETF Approach to Access the Potential of Small-Caps

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Whether it's momentum, volatility, size, quality, or value, there is no one-size-fits-all solution when it comes to factor investing. This is where multi-factor funds can assist, and one place to start is the strongest 2021 performers.

Majestic Multi-Factor ETFs: Here Are 3 to Consider

With small cap stocks currently standing out, investors may want to consider a multi-factor approach to the group. That's accessible via an array of exchange traded funds, including the Principal's U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC).

With Small Caps Surging, Turn to a Multi-Factor ETF

The momentum accrued by small caps to end 2020 is carrying over to 2021, as highlighted by Principal's U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) 5.40% gain to kick off the new year. PSC's underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and value [.

‘PSC': Hot Start for ETFs More Than Just a January Effect

Small-cap stocks are leading markets higher. With the Russell 2000 Index poised to outperform the large-cap S&P 500 on an annual basis for the first time since 2016, the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) is getting in on the fun.

The Russell 2000 Index Is Poised to Beat the S&P 500 This Year

With small-caps surging to end 2020 and market observers are forecasting a rebound for multi-factor strategies next year, the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) is in a uniquely advantageous position. PSC's underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth [.

What Can Small-Cap Multi-Factor ETFs Do for You?

Small-cap stocks are in a groove and the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) is certainly one of them. But in the case of PSC, there's more to the investment story.

It's a Small World: Principal's Small-Cap ETF Booming

Small-cap stocks are roaring, providing opportunity with exchange traded funds like the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC). PSC's underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq US Small Cap Index [.

With Small-Cap ETFs Booming, Russell 2000 Index Hits Record High

Smaller stocks look poised to take on leadership roles and that could prove meaningful for the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC). PSC’s underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq [.

Small-Cap Resurgence Bodes Well for this ETF

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While investors may like the safety and security of large caps, particularly in today’s uncertain market environment with Covid-19 and a forthcoming presidential election, small caps are starting to show signs of life. What exactly is causing small cap ETFs to heat up right?

What’s Driving Small Cap ETF Performance Right Now?

If small-cap stocks regain leadership roles, investors may want examine multi-factor exchange traded funds, including the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC). PSC’s underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq [.

Where to Be When Small-Caps Lead Again

The past month hasn’t been kind to small-cap equities, but that recent lethargy could give way to opportunities with the proper strategies, including the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC). PSC’s underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and [.

Marvelous Multi-Factor for Small-Cap Exposure

Small-cap stocks showed some resilience amid recent retrenchment by mega-cap technology stocks and that could be a positive sign for the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) going forward.

Multi-Factor Small-Cap Could Be Poised to Rally

The Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC), as its name implies, is a multi-factor strategy and one of the factors represented in the fund is momentum.

Momentum Matters in this Multi-Factor Small-Cap Strategy

The Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) is higher by more than 5% over the past month and that could be the start of something more substantive as factor-based small-cap strategies gain momentum.

This Small-Cap ETF Rally Could Prove Durable

Small-cap stocks are strutting their stuff again and that could pave the way for more upside in the already resurgent Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC).

With Small Caps Heating up, Revisit This ETF

Combining smaller stocks with the momentum factor can be a winning strategy when the strategy is properly executed. The Principal U.S.

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Smaller stocks have what appear to be some sustainable tailwinds, a scenario increasing the allure of ETFs, such as the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC).

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When taking on a factor-based strategy, value investing and small cap investing may not be optimal now, but over the long run, it could be beneficial for investors who have the patience. The coronavirus pandemic is pushing investors into momentum-based equities and the safe haven of large caps, but value and small-caps are not to [.

Small-Cap Investing Has Proved Favorable in the Last Two Decades

With more market observers warming to the idea of a small-cap rally, the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC) is an ETF that can continue building on what’s been an impressive second-quarter showing.

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Equities, small or large, have been rising in unison since the height of the coronavirus pandemic sell-offs back in March. However, as the race to recovery gets longer in the tooth, it could be small caps huffing and puffing as they run out of steam.

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With mid- and small-cap stocks in rally mode, some ETFs could prove better at capturing that bullishness than others. One idea is the Principal U.S.

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Small-capitalization stocks, especially those leaning toward the value style, and related ETFs have been among the worst-performing broader segments of the U.S. markets, but they could begin to outperform as the economy recovers from the coronavirus lockdowns.

News for Principal U.S. Small-Cap Multi-Factor Index ETF ETF (PSC)