The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  Principal Intl Adptv Mlt-Fac ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the lowest 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 underweight position in liquidity exposure and an overweight in yield exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. This management team has a wealth of experience, but still gets an Average People Pillar rating. 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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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. Principal Intl Adptv Mlt-Fac ETF earns a Below Average Process Pillar rating. 

The process is bolstered by low costs across its parent firm's funds, whose fees rank in their respective category's middle quintile on average. The pattern of low expenses at the firm suggests that it is focused on delivering strong results for investors. However, the rating is weakened by the parent firm's five-year risk-adjusted success ratio of 46%. 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. The parent firm's risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.1 stars, also limits the process. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy leans toward smaller, more undervalued companies than its average peer in the Foreign Large Blend Morningstar Category. Analyzing additional factors, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, however, the strategy had less Yield factor exposure in the latest month. Additionally, this strategy has demonstrated a tilt toward low-volatility stocks in these years, meaning companies with a lower historical standard deviation of returns over its peers. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. In this month, however, the strategy had more exposure to the Volatility factor 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, energy and real estate, that are similar to the category. The sectors with low exposure compared to category peers are technology and healthcare, with technology underweighting the average portfolio by 2.7 percentage points of assets and healthcare similar to the average. The portfolio is positioned across 708 holdings and is diversified among those holdings. In its most recent portfolio, 13.0% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 15.1% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Below Average

Process

Principal Intl Adptv Mlt-Fac ETF earns an Average People Pillar rating. The main contributor to the rating is the strategy's fees, which rank in its category's cheapest fifth. A higher expense ratio reduces net returns, so low costs give this team an advantage. The portfolio managers' outperformance at the funds they run, as measured by their combined three-year manager excess returns, also influences the rating. Lastly, the rating is limited by the parent firm's five-year success ratio of 45%. 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 modest success ratio suggests that the firm could do better across its fund lineup.


Aaron J. Siebel, the longest-tenured manager, has five years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.2 stars, demonstrating average risk-adjusted performance. Aaron J. Siebel has an experienced listed co-manager. Together, they average 13 years of portfolio management experience.

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 International Adaptive Multi-Factor ETF

PXUS is an actively managed fund of developed ex-US stocks selected and weighted based on a proprietary rules-based multi-factor methodology.

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