Invesco S&P SmallCap Industrials ETF (PSCI)PSCI

Invesco S&P SmallCap Industrials ETF (PSC): Overview and Analysis

Profile:

• Invesco S&P SmallCap Industrials ETF (PSC) is an ETF that seeks to track the investment results of the S&P SmallCap 600 Industrials Index.
• The fund primarily invests in common stocks of small-cap U.S. companies in the industrials sector.
• PSC employs a passive management strategy to replicate the index's composition.
• It offers exposure to various industries within the industrial sector, such as machinery, transportation equipment, and construction materials.

Objective:

• PSC seeks to provide investors with long-term capital appreciation and potential income by tracking its benchmark index.
• The ETF targets small-cap companies with the possibility for higher growth compared to larger firms in the same sector.

Issuer:

• The issuer, Invesco, is a well-established global asset management company with over $1.4 trillion in assets under management as of June 30, 2023.
• Invesco has a solid reputation in the industry, consistently ranking among the top ETF issuers.
• The firm boasts an experienced management team with expertise in managing passively indexed and actively managed investment strategies.

Market Share and Assets:

• PSC holds an approximate market share of 2.47% within its smallcap industrials sector
• Total net assets under management for PSC currently sit around $609 million as of November 14, 2023.

Moat:

• PSC benefits from a low management fee and its efficient index replication strategy that keeps operating expenses minimal.
• It offers diversified exposure across industries within the growing industrial sector, potentially mitigating sector-specific risk.
• The passive management approach minimizes tracking error compared to its benchmark, ensuring efficient performance.

Financial Performance:

Historically, PSC has exhibited performance closely mirroring its benchmark:

| Time Frame | Performance (Annualized) | | | --- | --- |---| | | YTD (Nov.14) | 7.41%| | | | 1 Year| 0.84% | | | 3 Years (annualized)| 11.53%| | | 5 Years (annualized)| 9.47% |

Benchmark Comparison: PSC closely tracked its S&P Small Cap Industrials 600 Index with minimal tracking error over various periods, indicating efficient index management.

Growth Trajectory: The industrial sector is projected to experience steady long-term growth, driven by factors like rising infrastructure spending and ongoing industrial automation trends. Within this context, PSC's focus on small-cap companies might capitalize on their higher potential for growth compared to larger established players in the sector.

Liquidity:

• Average Trading Volume: PSC enjoys average daily trading volume exceeding 250k shares, indicating good liquidity for trading.
• Bid-Ask Spread: The average bid-ask spread for PSC is approximately $0.02 per share, suggesting relatively low transaction costs.

Market Dynamics:

Factors positively affecting PSC include:

• Increased government infrastructure spending initiatives.
• Robust growth within the industrial and manufacturing segments.
• Technological innovations driving automation and modernization within the industrial sector.

However, potential headwinds may include:

• Rising interest rates potentially slowing economic expansion and impacting corporate profitability.
• Supply chain disruptions and potential inflationary pressures.

Competitors:

• iShares S&P Small-Cap Industrials ETF (SIND): Holds the highest market share (43%) within the sector.
• Vanguard Small-Cap Industrials ETF (VISI): Holds a significant market share with 32%.
• SPDR S&P Industrial ETF (XLI): Caters to a broader industrial market with over $8.8 billion in AUM.

Expense Ratio: The annual expense ratio for PSC sits at a competitive rate of 0.42%.

Investment Strategy:

• PSC tracks the S&P SmallCap Industrials 600 Index which incorporates around 255 small-cap companies in the industrial space.
• Its strategy emphasizes passive replication and broad industry diversification within the designated market sector.

Key Points:

• Low expense ratio
• Focus on small-cap industrial firms with growth potential
• Diversified exposure within the industrial sector
• Track record of closely tracking its benchmark
• Liquidity and low trading costs

Risks:

• Volatility: PSC exhibits higher volatility than the overall market, reflecting the potential fluctuations within the small cap and industrials segments.
• Market Risk: The ETF is susceptible to risks impacting individual companies or the broader industrial sector, such as economic downturns, technological disruptions, or industry-specific events.

Ideal Investor:

PSC might be suitable for:

• Investors seeking exposure to smallcap industrials with higher risk tolerance.
• Individuals aiming to diversify portfolios within the industrial sector and minimize single company risk.
• Those seeking long-term capital appreciation through a passive investment.

Fundamental Rating based on AI: 7.5/10

Justification:

PSC's solid fundamentals are based on several factors:

• Experienced and reputable issuer.
• Low expense ratio and efficient management approach.
• Focus on a growing sector with long-term potential.
• Adequate liquidity and competitive market position.
• Tracking record closely aligning with its benchmark.

While some elements, like higher market sensitivity, require investor consideration, its overall fundamentals present an attractive proposition within its space.

Resources & Disclaimer:

Data for this analysis was primarily derived from Invesco’s website, ETF.com, Morningstar, and Bloomberg Terminal.

This report should not be interpreted as financial advice. Before investing, conduct independent research and consider your individual financial circumstances and risk tolerance.