Invesco S&P SmallCap Energy 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 least expensive fee quintile among peers.  

 The strategy receives a Low 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 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 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

SM Energy

Magnolia Oil & Gas Corp

Helmerich & Payne

Northern Oil and Gas

Patterson-UTI Energy

Liberty Oilfield Services

California Resources

Archrock

Oceaneering

CONSOL Energy

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Invesco S&P SmallCap Energy ETF earns a Low Process Pillar rating. The primary detractor from the rating is the fund's unimpressive 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 process back. The parent firm's disappointing risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.8 stars, detracts from the process as well. 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 S&P SmallCap 600® Capped Energy Index (the "underlying index").  The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. Strictly in accordance with its guidelines and mandated procedures, S&P Dow Jones Indices, LLC (the “index provider”) compiles, maintains and calculates the underlying index, which is designed to measure the performance of securities of small-capitalization U.S. companies in the energy sector, and as defined by the Global Industry Classification Standard (“GICS ® ”). It is non-diversified. 

 The portfolio is overweight in energy and basic materials relative to the category average by 8.8 and 2.9 percentage points, respectively. The sectors with low exposure compared to category peers are utilities and industrials, with utilities underweighting the average portfolio by 7.3 percentage points of assets and industrials similar to the average. The strategy owns 31 securities and is relatively concentrated. Specifically, 60.8% of the strategy's assets are housed within the top 10 holdings, as opposed to the typical peer's 51.9%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 48% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Process

Invesco’s equity team is strong compared with others in the industry, resulting in 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, demonstrating their 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: 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

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