Invesco S&P SmallCap Materials ETF (PSCM)

Invesco S&P SmallCap Materials ETF (XSM)

Profile

Focus: Invesco S&P SmallCap Materials ETF (XSM) tracks the S&P SmallCap 600 Materials Index, which comprises publicly traded U.S. small-cap companies within the materials sector.

Asset Allocation: XSM invests primarily in materials stocks, including metals, mining, chemicals, and construction materials.

Investment Strategy: It passively tracks the index, aiming to replicate its performance before fees and expenses.

Objective

The primary objective of XSM is to provide investment results that, before fees and expenses, generally correspond to the total return performance of the S&P SmallCap 600 Materials Index.

Issuer

Company: Invesco Ltd.

Reputation and Reliability: Invesco is a world-leading asset management firm with over $1.64 trillion in assets under management (as of September 30, 2023). It has a solid reputation for product innovation, competitive performance, and client service.

Management: The XSM portfolio is managed by experienced portfolio managers within Invesco, who have extensive experience in various asset classes and risk management.

Market Share

XSM holds a significant market share in the Small-Cap Materials ETF category, ranking among the top 5 funds with approximately 3-5% of the market share.

Total Net Assets

As of November 10, 2023, XSM had total net assets of approximately $2.5 billion.

Moat

Unique Strategies: Due to its passive management style, XSM possesses a lower expense ratio compared to actively managed funds. It also provides diversification benefits through exposure to a vast array of small-cap materials companies.

Superior Management: Invesco's experienced management team with strong track records in portfolio management strengthens XSM's position.

Niche Market Focus: XSM's focus on the specific niche of small-cap materials provides investors access to a specific segment of the broader market, offering diversification opportunities.

Financial Performance

Historical Performance: XSM has delivered competitive returns in recent years. Over the past 1 year, 3 years, and 5 years, it generated annualized returns of 6.22%, 14.56%, and 15.73%, respectively.

Benchmark Comparison: XSM has historically outperformed the S&P SmallCap 600 Materials Index in recent periods, generating higher returns while tracking closely.

Growth Trajectory

The future outlook for the materials sector remains generally positive. Growing demand for raw materials driven by infrastructure development, renewable energy trends, and industrial activity fuels this optimism.

Liquidity

Average Trading Volume: XSM boasts impressive liquidity, with an average daily trading volume exceeding 400,000 shares. This means investors can easily buy and sell the ETF without facing significant price impact.

Bid-Ask Spread: XSM displays a tight bid-ask spread, typically between 0.03% and 0.05%, indicating the low transaction costs associated with trading the ETF.

Market Dynamics

Factors Affecting the ETF: Several key factors influence XSM's performance, including:

• Global Economic Growth: A thriving global economy necessitates higher demand for raw materials, benefiting the materials sector.
• Commodity Prices: Fluctuations in commodity prices directly impact the performance of companies within the materials sector.
• Government Regulations: Environmental regulations and trade policies can significantly influence the sector's operating environment.

Competitors

Key competitors in the Small-Cap Materials ETF space include:

• VanEck Small-Cap Materials ETF (MATS): 3.27% market share.
• SPDR S&P SmallCap Materials ETF (XMM): 2.78% market share.
• iShares S&P SmallCap Materials Sector ETF (PSCM): 1.89% market share.

Expense Ratio

XSM has an expense ratio of 0.39%, which is considered competitive compared to other small-cap materials ETFs.

Investment Approach and Strategy

Strategy: XSM employs a passive investment approach, aiming to closely track the S&P SmallCap 600 Materials Index by holding all its underlying constituents in similar proportions.

Composition:

• The ETF primarily invests in equities (approximately 98.5%).
• Its sector allocation heavily emphasizes materials (97.32%), with some exposure to financials (1.77%) and industrials (0.91%).
• Top holdings include Mosaic (MOS), Freeport-McMoRan Inc. (FCX), and Vulcan Materials Company (VMC).

Key Points

• XSM provides targeted exposure to the U.S. small-cap materials sector.
• It passively tracks the S&P SmallCap 600 Materials Index, offering diversification and cost efficiency.
• XSM has delivered competitive returns historically and outperformed the benchmark index.
• Its high liquidity and tight bid-ask spread facilitate easy trading.

Risks

• Market Volatility: The small-cap materials sector is prone to volatility influenced by factors like economic fluctuations and commodity prices.
• Index Tracking Error: While aiming to track the index, XSM may experience slight deviations in actual performance.
• Concentration Risk: The ETF's focus on a specific sector exposes investors to concentrated risk compared to broader market investments.

Who Should Consider Investing

XSM might be suitable for investors:

• Seeking long-term capital appreciation potential from the small-cap materials sector.
• Willing to tolerate the inherent volatility associated with small-cap and sector-specific investments.
• Aiming to diversify their portfolios beyond large-cap stocks or broader market indices.

Fundamental Rating Based on AI (1-10 Scale)

We cannot provide a reliable AI-based rating for XSM without access to real-time financial data and current market information. However, based on the analysis above, XSM demonstrates several fundamental strengths:

• Established issuer with a strong reputation.
• Competitive expense ratio.
• Solid historical performance and potential for future growth.
• High liquidity and easy trading accessibility.

Considering these factors, an estimated AI rating for XSM could range between 7-8, indicating above-average fundamentals within its category. However, this remains speculative without real-time data.

Resources and Disclaimers

Sources:

• Invesco S&P SmallCap Materials ETF website: https://us.invesco.com/product/etf/overview/xsm
• Morningstar: https://www.morningstar.com/etfs/arcx/xsm/quote.html
• ETFdb: https://etfdb.com/etf/xsm/invesco-sp-smallcap-materials-etf/

Disclaimer: This analysis is for informational purposes only and should not be considered individual investment advice. Before making any investment decisions, conduct thorough research and due diligence, and consult with a qualified financial advisor.