Invesco cross-lists currency-hedged PowerShares ETFs to SIX

Oct 31st, 2017 | By | Category: Alternatives / Multi-Asset

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Invesco has cross-listed three PowerShares ETFs, comprising seven trading lines, to Switzerland’s SIX Swiss Exchange. The ETFs offer currency-hedged exposure to the Nasdaq 100, a high-dividend low-volatility version of the S&P 500, and US high-yield bonds.

Invesco cross-lists currency-hedged PowerShares ETFs to SIX

Invesco has cross-listed seven new ETFs onto SIX Swiss Exchange.

The PowerShares EQQQ Nasdaq-100 CHF Hedged UCITS ETF (EQCH) provides access to the Nasdaq 100 Index while hedging returns between the US dollar and the Swiss franc. Two other share classes of the fund have been listed, hedging returns between the US dollar and the euro (Ticker: EQEU) or pounds sterling (EQGB). Each listing has a total expense ratio (TER) of 0.35%.

The Nasdaq 100 Index is a US large-cap equity index which represents the performance of the 100 largest non-financial stocks listed on Nasdaq Exchange. The market-cap weighted index currently has a significant weighting to a select number of companies, and a heavy bias toward the technology sector (currently 55% of the index), based on the market capitalisation of these few companies.

The top five constituents account for 41.8% of the index weight: Apple (11.7%), Alphabet (9.0%), Microsoft (8.4%), Amazon (6.8%) and Facebook (5.9%).

The PowerShares S&P 500 High Div Low Vol CHF Hedged UCITS ETF (HDCH) tracks the S&P 500 Low Volatility High Dividend Index while hedging returns between the US dollar and the Swiss franc. Its TER is 0.35%.

The index’s first filter selects the 75 highest dividend yielding stocks in the bellwether S&P 500 Index. A limit of ten stocks per GICS sector is applied to promote diversification in the index.

The second filter then ranks these 75 stocks by trailing 12-month price return volatility, and the 50 stocks with the lowest volatility are selected for the index’s final composition. Constituents are weighted by dividend yield to boost the income profile of the index.

The resulting index has a large exposure to the real estate sector (23.6%), followed by utilities (18.7%), consumer staples (10.8%), information technology (10.3%) and energy (10.2%). This is in contrast to the S&P 500 which is primarily exposed to the information technology (23.2%), financials (14.6%), healthcare (14.5%), consumer discretionary (11.8%) and industrials (10.2%) sectors.

The high-div low-vol index has produced superior performance over the past ten years, returning 11.8% per annum with an annualized standard deviation of 13.8%, compared to an annual return of 7.4% and an annualized standard deviation of 15.1% for the S&P 500 over the same period.

S&P 500 High Div Low Vol

Source: S&P Dow Jones Indices.

The third ETF listed is the PowerShares US High Yield Fallen Angels CHF Hedged UCITS ETF (FACH) which tracks the Citi Time-Weighted US Fallen Angel Bond Select Index while hedging returns between the US dollar and the Swiss franc. Two other share classes of the fund have been listed, hedging returns to the euro (Ticker: FAEU) and pounds sterling (FAGB). Each fund has a total expense ratio (TER) of 0.50%.

The physically replicating ETF provides exposure to USD-denominated ‘Fallen Angel’ bonds from issuers domiciled in North America. Fallen angels are bonds that were originally issued with investment-grade status but have since been downgraded to junk.

The ETF is based on the premise that the overly negative sentiment surrounding a downgrade into junk status causes fallen angels to be regularly oversold as investors, often forced by their investment mandate, sell en masse prior to and at downgrade, leading to a price anomaly.

The index is time-weighted, allocating higher weights to those bonds that have been downgraded most recently in an attempt to maximise the return from any ‘V-shaped’ bounce the downgraded bonds may exhibit.

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