Invesco has launched an actively managed global equity multi-factor ETF that incorporates strict environmental, social and corporate governance (ESG) criteria.
Gary Buxton, Head of EMEA ETFs at Invesco.
Listed on London Stock Exchange and Xetra, the Invesco Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF comes with ongoing charges of 0.60% and is available to trade in USD (IQSA LN, IQSA GY) and EUR-hedged (IQSE GY) accumulating share classes.
It comes to market with seed capital of around $70 million.
The fund provides exposure to a portfolio of global equities while targeting returns attributable to the value (i.e. companies perceived to be inexpensive relative to market averages), quality (i.e. companies that demonstrate stronger balance sheets relative to market averages) and momentum (i.e. companies whose historical share price performance or earnings growth have exceeded market averages) factors.
Gary Buxton, Head of EMEA ETFs at Invesco, commented, “Three of the biggest trends we have seen over the past decade are growing demand for multi-factor strategies, ESG investments, and ETFs more generally. Proven expertise in all these areas has enabled us to respond to investor demand by delivering a multi-factor solution that adheres to strict ESG criteria and has all the benefits you would expect from our ETF structure.”
The ETF is managed by Invesco’s Quantitative Strategies (IQS) team which has been developing its factor-based, quantitative investment philosophy for over 35 years.
Manuela von Ditfurth, Senior Portfolio Manager in the Invesco Quantitative Strategies team, said, “We believe this strategy could appeal to ESG-focused investors who want to capture the potential benefits of increased exposure to factors and are not tightly constrained to traditional benchmarks.”
The portfolio is based on a universe of circa 3000 eligible stocks for which IQS maintains factor scores. These stocks are then run through a two-step ESG filter to narrow down the selection pool.
In step one, companies are screened based on their activities, as defined by revenue share. The exclusion criteria are nuclear power, coal, tar sands and oil sands, military weapons, alcohol, tobacco, gambling, adult entertainment, genetic engineering as well as human and labour rights violations. In step two, the remaining stocks are screened following a best-in-class approach with the top 50% of stocks chosen based on corporate governance, environment and climate issues and stakeholder management.
Stocks making it through the ESG filter are then scored based on their attractiveness with respect to the three investment factors. The final portfolio of constituents are assigned according to a proprietary risk model that seeks to maximize exposure to the three factors whilst controlling sector, country, currency and stock-specific risk broadly relative to the MSCI World. Holdings are rebalanced on a monthly basis.
As of the end of July 2019, three-fifths (60.5%) of the fund was allocated to stocks from the US with the next largest country exposures being Japan (9.3%), the UK (7.6%), Canada (3.9%), Sweden (3.8%), and Australia (3.6%). Sector exposure is relatively evenly diversified across information technology (18.5%), financials (15.0%), industrials (13.8%), health care (12.9%), consumer discretionary (12.2%), and consumer staples (11.8%).
The new ETF is the latest in the firm’s growing stable of responsible investment products. It follows the launch in June of three ETFs – global developed, US, and Europe-focused funds – which provide low-cost exposure to customized versions of MSCI ESG Universal Indices.
The recent launches reflect a maturing of the smart beta trend as it transitions past its initial high-growth phase and as providers increasingly look to differentiate products from rivals’ by incorporating new features, such as ESG or thematic considerations.
Invesco is not the first to go down this route. Just last week, UniCredit introduced the UC EURO iSTOXX ESG-X Multi Factor UCITS ETF (ECBF GR) which provides exposure to an ESG-screened portfolio of eurozone stocks that is diversified across profitability, earnings yield, leverage, value, and low volatility factors. This fund comes with an ongoing charge of 0.40%.
And as far back as 2017, IndexIQ launched a suite of five ETFs that married a factor-based approach with ESG considerations. These ETFs employ an ESG filter to screen potential securities and then a multi-factor methodology to weight the selected constituents. These funds come with fees of 0.30% and 0.35%.