A strong management team and sound investment process underpin Invesco S&P SmallCap Quality ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and yield exposure compared with category peers. A high quality exposure means holding stocks that are consistently profitable, growing, and have solid balance sheets. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Mueller Industries

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Badger Meter

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Installed Building Products

Alpha Metallurgical Resources

AAON

Asbury Automotive Group

Encore Wire

Academy Sports and Outdoors

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 Quality ETF earns an Above Average Process Pillar rating. 

The most important driver of the rating is the fund's impressive 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. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 42%. 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 prefers smaller market-cap firms compared with the average fund in its peer group, the Small Blend Morningstar Category.  But in terms of style (value/growth) exposure, it is similar. Looking at additional factor exposure, this strategy has consistently favored high-quality stocks, including those with low financial leverage and solid returns on equity, compared with Morningstar Category peers during recent years. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, the strategy has demonstrated a contrarian approach with relatively low exposure to momentum stocks during these years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. In this month, however, the strategy had more exposure to the Momentum 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 is overweight in energy and consumer cyclical relative to the category average by 7.3 and 6.6 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and real estate, underweight the average by 9.2 and 6.4 percentage points of assets, respectively. The portfolio is positioned across 120 holdings and is less top-heavy than peers. Specifically, 21.1% of the fund’s assets are concentrated within the top 10 fund holdings, as opposed to the category average's 23.9%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 84% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Invesco’s 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.

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 Quality ETF

XSHQ tracks an index of US small-cap stocks selected by return-on-equity, accruals ratio, and financial leverage. Stocks are weighted by these quality factors and scaled by market-cap.

Small-caps have struggled in the market due to the risk of "zombie companies" and higher interest rates. Invesco S&P SmallCap Quality ETF targets quality within the small-cap universe. The XSHQ ETF has outperformed similar ETFs and offers exposure to high-quality small-cap stocks, but comes with higher volatility and expenses.

XSHQ: A Quality Approach That Works For Small-Caps

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Despite the S&P 500 extending last year's rally and touching on new highs this year, investors don't quite have the risk dial turned up to maximum level. An article by VettaFi's Head of Research Todd Rosenbluth revealed a measured move towards quality options in the current market environment during a VettaFi Equity Symposium.

For Investors Who Prioritize Quality, Consider These 3 ETF Options

The Invesco S&P SmallCap Quality ETF is a blend of Growth and Value Small-Cap stocks selected based on several quality factors. This article reviews XSHQ, its Index and then is compared against a selection of Small-Cap ETFs that use different strategies, including one based on an index that does use factors. XSHQ has shown promising results but needs to prove itself before a strong recommendation. Recent performance relative to the other ETFs included in the analysis has shown improvement.

XSHQ: My First Look At This SC Blend ETF Results In A Hold Rating

The S&P SmallCap 600 Index tracks the performance of US companies with market caps between $850 million and $5.2 billion. The S&P SmallCap 600 Quality Index is made up of the top companies from the Small Cap index screened for three criteria. We go over the XSHQ fund and tell you how it can help you invest better in the small cap space.

XSHQ: Weed Out Junk From Small Cap Investing

XSHQ is a passively managed, index-based fund searching for quality in the small-cap universe. Nevertheless, mostly because of the weighting schema, it is overweight in mid-caps. XSHQ is a Buy since its portfolio has a strong balance of quality and value, which is reflected in the weighted-average ROA, earnings yield, and other parameters.

XSHQ: A Quality-Heavy Fund With An Edge Over A Few Peers

Invesco has two funds in its suite of factor ETFs providing quality exposure down the cap spectrum. Many investors may be missing out on mid- and small-cap companies.

Use XMHQ, XSHQ to Fill Gaps in Quality SMID-Cap Exposure

Invesco's suite of quality ETFs is garnering significant investor attention. The Invesco S&P MidCap Quality ETF (XMHQ) and the Invesco S&P 500 Quality ETF (SPHQ) are among Invesco's most popular ETFs over one-week and one-month periods, as measured by net flows.

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The summer's optimism about the U.S. consumer and economy has waned, with the Consumer Confidence Index dropping in September. According to data released on Tuesday by the Conference Board, the index fell to 103 from August's 108.7, marking the most significant monthly decline since December 2020, as reported by Wells Fargo Economics, as quoted on Yahoo Finance.

Time for Quality ETFs as Consumer Confidence Wanes?

The second best-performing S&P 500 factor in August, quality ETFs are currently having a moment. The popular Invesco S&P 500 Quality ETF (SPHQ) has seen strong inflows recently, accreting $319 million in net flows in one month.

If You Like SPHQ, Check Out Quality ETFs XMHQ and XSHQ

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The pint-sized stocks tend to gain momentum in 2H due to the better-than-expected U.S. economic recovery, a resilient consumer base, a fall in inflation and the likelihood of a less-hawkish Fed.

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Exposure to the quality and low volatility factors can help portfolios remain defensive in the current environment. With lots of uncertainty looming in the market, many investors want to maintain more defensive allocations.

How Quality and Low Volatility Can Work Together in Portfolios

Advisors looking for quality exposure due to market uncertainty should consider opportunities down the cap spectrum. SPHQ is a favorite fund among investors for providing quality exposure, but investors may be missing out on smaller capitalization companies.

Use XMHQ and XSHQ for Quality Exposure Down the Cap Spectrum

Small-cap stocks are back in style as of late, and the quality factor, well, that never goes out of style. Put it together, and now is a good time consider the small-cap/quality marriage.

Good Time to Apply Quality to Small-Caps

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The global economic recovery could be happening at a slower rate than anticipated, which puts low growth strategies and three exchange traded funds (ETFs) from Invesco in focus. Investors who are skeptical about the recovery can opt for low growth ETF strategies from Invesco that focus on quality.

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The widely observed Russell 2000 Index jumped nearly 2% on Wednesday, prompting talk that smaller stocks could be ready to rally anew. Whether substantial upside from small caps materializes remains to be seen.

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After a monster rally, Wall Street seems to be losing steam on fading euphoria on vaccine rollout. Is this the time to be cautious and bet on quality ETFs?

Here's Why the Time is Ripe to Tap Quality ETFs

It's obvious that with the current market landscape, amidst Covid-19 and a forthcoming presidential election, navigating through the capital markets is like rock climbing. As in any dangerous activity, you'll want a safety line and to seek out quality investments to provide that element of safety.

In Uncertain Times, Quality ETFs Are Key

In recent weeks, small cap equities have been keeping pace their large cap brethren, but before advisors start sticking their clients into these small cap funds, they might want to think twice. While it helps to diversify a client's portfolio and get the additional upside of small caps, advisors should keep quality in mind.

News for Invesco S&P SmallCap Quality ETF ETF (XSHQ)