Invesco S&P SmallCap Health Care 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 cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy gets a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. 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

Ensign Group

Glaukos

Organon & Co

Merit Medical Systems

Alkermes

Integer Holdings

Prestige Brands Holdings

Fortrea Holdings Inc

RadNet

Select Medical Holdings

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. Invesco S&P SmallCap Health Care ETF earns a Below Average Process Pillar rating. The process is strengthened 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 weakened by 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 subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.8 stars, also holds the rating back. 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 Health Care Index.  The fund generally will invest at least 90% of its total assets in the securities that comprise the index. Strictly in accordance with its guidelines and mandated procedures, S&P Dow Jones Indices, LLC compiles, maintains and calculates the index, which is designed to measure the performance of securities of small-capitalization U.S. companies in the health care sector, and as defined by the Global Industry Classification Standard. 

 The portfolio has allocations in its top two sectors, financial services and technology, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and basic materials; however, the allocations are similar to the category. The strategy owns 72 securities and is similarly diversified as peers, with 37.6% of portfolio assets concentrated within the top 10 holdings. And finally, in terms of portfolio turnover, looking at year-over-year movements, 29% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

Invesco S&P SmallCap Health Care ETF's strong equity team drives the strategy's Above Average People Pillar rating. There are four managers listed on the fund: Michael Jeanette, Peter Hubbard, Tony Seisser, Pratik Doshi. The team is well equipped, with an average of 12 years of portfolio management experience. Together, they manage a total of 144 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position 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

Invesco S&P SmallCap Health Care ETF

PSCH tracks a market-cap-weighted index of small-cap health care companies taken from the S&P SmallCap 600 Index.

Small-cap healthcare stocks are increasingly attractive as a catch-up trade in the sector. The Invesco S&P SmallCap Health Care ETF provides access to US-based small-cap healthcare companies. PSCH is highly diversified, with low costs and a focus on replicating the performance of its benchmark index.

PSCH: The Small-Cap Health Care Catch-Up Trade

Launched on 04/07/2010, the Invesco S&P SmallCap Health Care ETF (PSCH) is a passively managed exchange traded fund designed to provide a broad exposure to the Healthcare - Broad segment of the equity market.

Should You Invest in the Invesco S&P SmallCap Health Care ETF (PSCH)?

Invesco S&P SmallCap Health Care ETF is a well-diversified healthcare fund that invests in US-based small-cap companies in the healthcare sector. The fund has a history of strong growth and is projected to continue growing due to innovation in the sector. While the fund has had a poor total return in recent years, it has generated a high average total return during the 2016-2021 high-growth period.

PSCH: A Small-Cap Healthcare ETF Having Strong Growth Potential With Proportionate Risk

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