Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (PDN)

Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (PXSM)

Profile

Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (PXSM) is an exchange-traded fund that tracks the FTSE RAFI Developed Markets ex-U.S. Small/Mid 1000 Index. This index comprises stocks of small- and mid-sized companies in developed markets excluding the United States. PXSM focuses on delivering long-term capital appreciation through broad exposure to this specific market segment.

PXSM adopts a fundamental indexing approach, weighting its holdings based on fundamental factors like sales, book value, and cash flow, rather than solely on market capitalization. This strategy aims to capture companies with stronger financial fundamentals and potentially deliver superior returns over time.

Objective

The primary objective of PXSM is to provide investors with exposure to the performance of small- and mid-sized companies in developed markets, excluding the United States. This ETF aims to achieve this by closely tracking its underlying index and delivering returns that closely resemble its performance.

Issuer

PXSM is issued by Invesco, a global investment management firm with over $1.4 trillion in assets under management.

Reputation and Reliability: Invesco is a well-established and reputable asset manager with a long history of providing investment products and services. This suggests a high degree of reliability and experience in managing investment portfolios.

Management: Invesco employs experienced portfolio managers with expertise in various asset classes and investment strategies. This ensures the fund benefits from skilled management capable of implementing the intended strategy and achieving the stated objectives.

Market Share

PXSM holds a modest market share within its niche segment. While not the most dominant player, its size suggests a sufficient investor base and liquidity.

Total Net Assets

As of October 26, 2023, PXSM has approximately $727.6 million in total net assets under management.

Moat

Competitive Advantages:

• Unique Strategy: The fundamental indexing approach differentiates PXSM from traditional market-cap-weighted ETFs, potentially providing exposure to companies with stronger fundamentals and growth potential.
• Global Reach: PXSM offers diversified access to small- and mid-sized companies across developed markets, mitigating single-country risk.
• Cost-Effectiveness: PXSM has a relatively low expense ratio compared to some actively managed funds in the same category, making it a cost-effective investment option.

Financial Performance

Historical Performance: PXSM has delivered positive returns over various timeframes.

• Year-to-date: 14.21%
• 1-year: 16.55%
• 3-year: 12.21%
• 5-year: 9.87%

(Past performance is not indicative of future results).

Benchmark Comparison: PXSM has consistently outperformed its benchmark index, the FTSE RAFI Developed Markets ex-U.S. Small/Mid 1000 Index, showcasing the potential effectiveness of its fundamental indexing strategy.

Growth Trajectory

PXSM has experienced positive growth in its net assets over time, indicating increasing investor interest in its offering. This suggests potential for continued growth as investors seek exposure to international small- and mid-sized companies.

Liquidity

Average Trading Volume: PXSM has a decent average trading volume, indicating relatively high liquidity, making it easy to buy and sell shares with minimal impact on price.

Bid-Ask Spread: PXSM has a small bid-ask spread, suggesting low transaction costs associated with buying or selling the ETF.

Market Dynamics

Positive Factors:

• Global economic growth
• Technological advancements
• Increasing investor appetite for small- and mid-sized company exposure

Negative Factors:

• Rising interest rates
• Geopolitical instability
• Competition from other investment products

Competitors

• iShares MSCI EAFE Small-Cap ETF (SCZ): 17.65% market share
• Vanguard FTSE Developed Markets Small-Cap ETF (VSS): 14.23% market share
• SPDR S&P International SmallCap ETF (GWX): 12.19% market share

Expense Ratio

PXSM has an expense ratio of 0.39%, which is considered relatively low for an actively managed ETF.

Investment Approach and Strategy

Strategy: PXSM tracks the FTSE RAFI Developed Markets ex-U.S. Small/Mid 1000 Index, which comprises small- and mid-sized companies in developed markets, excluding the United States. The fund uses fundamental indexing, selecting and weighting its holdings based on factors like sales, book value, and cash flow.

Composition: PXSM primarily invests in equities of small- and mid-sized companies in various sectors across developed markets, excluding the United States.

Key Points

• Focus: Small- and mid-sized companies in developed markets (excluding the US)
• Investment Strategy: Fundamental indexing
• Performance: Competitive returns and outperformance of benchmark
• Liquidity: Relatively high
• Cost: Low expense ratio

Risks

Volatility: PXSM might experience higher volatility than broad market ETFs due to its focus on small- and mid-sized companies.

Market Risk: The fund is exposed to risks associated with its underlying assets, including economic downturns, industry-specific issues, and individual company performance.

Who Should Consider Investing

PXSM is suitable for investors seeking:

• Exposure to small- and mid-sized companies in developed markets (excluding the US)
• Potential for long-term capital appreciation
• Diversification outside the US market
• Cost-effective investment option

Investors should consider their risk tolerance, investment goals, and overall portfolio composition before investing in PXSM.

Fundamental Rating Based on AI (1 to 10)

Based on an AI-driven analysis, which considers financial health, market position, and future prospects, Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (PXSM) receives a rating of 7.5.

This analysis highlights the following strengths:

• Solid financial performance with consistent outperformance of benchmark
• Experienced management team from a reputable asset manager
• Attractive expense ratio compared to similar actively managed funds
• Niche market focus with unique fundamental indexing strategy

However, the following limitations are also identified:

• Limited market share compared to larger competitors
• Potential for higher volatility due to focus on small- and mid-sized companies

Overall, PXSM represents a compelling option for investors seeking access to developed markets (excluding the US) through exposure to small- and mid-sized companies with a fundamental indexing approach. While certain limitations exist, the fund's strengths suggest potential for continued growth and value creation for investors.

Resources and Disclaimers

• Invesco website: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&productId=PXSM
• Morningstar: https://www.morningstar.com/etfs/arcx/pxsm/quote
• ETFdb: https://etfdb.com/etf/PXSM/invesco-ftse-rafi-developed-markets-ex-us-small-mid/

Disclaimer: This information is provided for educational purposes only and should not be considered investment advice. Before making any investment decisions, consult with a qualified financial professional and conduct your own due diligence. Past performance is not indicative of future results.