Principal U.S. Small-Cap ETF (PSC)

On our desk, we are monitoring the macro sentiment shift as small caps show renewed momentum moving into 2026. Bottom-up consensus points to strong fundamental earnings inflections for smaller companies relative to the SandP 500, giving tactical weight to active small-cap strategies. However, clients must weigh whether an active rules-based framework justifies the higher friction costs inherent in a strategy running an 80% portfolio turnover rate.

Looking at the quantitative risk metrics for PSC, the fund exhibits solid 3-year and 5-year annualized total returns that place it favorably within Morningstar's Small Blend category. Yet, looking under the hood, the higher portfolio turnover compared to the 50% category average introduces potential drag from trading costs and tax efficiency. Investors need to balance the upside of its multi-factor exposure—avoiding distressed firms via quality and momentum screens—against these structural friction costs during volatile trading months.

When analyzing the execution protocols for multi-factor small-cap ETFs like PSC, I always look closely at sector performance attribution and factor leadership. In Q1 2026, we saw high momentum, high dividend yield, and book-to-price outperform, while high beta lagged. Understanding how a fund's multi-factor screen captures these shifts while managing drawdowns—such as navigating July 2026's -2.7% category dip—is vital for constructing robust small-cap allocations.