Strength in Invesco DWA Energy Momentum ETF's People Pillar is partially offset by an Average Process Pillar rating, leading to a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight 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 equity team managing the passive product drives the strategy's Above Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like a bench of seasoned portfolio managers, but it is held back by low portfolio manager retention. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

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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 DWA Energy Momentum ETF earns an Average Process Pillar rating. 

The main contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Respectable risk-adjusted performance also influences the rating. This can be seen in the fund's 10-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 39%. 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.

 This strategy targets smaller plays than its peers’ average in the Equity Energy Morningstar Category. But in terms of investment style, it is on par with peers. Analyzing additional factors, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. In addition, this strategy has exhibited a tendency to hold fewer stocks with high dividend or buyback yields over peers in recent years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. In recent months, the strategy also had less Yield 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 is overweight in energy and basic materials relative to the category average by 7.0 and 3.6 percentage points, respectively. The sectors with low exposure compared to category peers are utilities and technology, with utilities underweighting the average portfolio by 6.8 percentage points of assets and technology similar to the average. The portfolio is positioned across 47 holdings and is less top-heavy than peers. Specifically, 38.1% of the strategy's assets are concentrated within the top 10 fund holdings, compared to the typical peer's 48.8%. And finally, 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

Invesco DWA Energy Momentum ETF's strong equity team drives the strategy's Above Average People Pillar rating. There are four managers listed on the fund: Michael Jeanette, Tony Seisser, Peter Hubbard, Pratik Doshi. The team is well equipped, with an average of 11 years of portfolio management experience. Together, they manage a total of 142 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive 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.

Parent

Invesco DWA Energy Momentum ETF

PXI tracks an index of US energy firms selected and weighted by price momentum.

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