Invesco launches EM version of Goldman Sachs equity factor strategy

Sep 12th, 2018 | By | Category: Equities

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Invesco has launched the Invesco Goldman Sachs Equity Factor Index Emerging Markets UCITS ETF ETF (EFIM LN) on London Stock Exchange, providing exposure to emerging market equities weighted according to a multi-factor process.

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco.

The fund, which is swap based, is the third product in its range of multi-factor ETFs linked to smart beta indices developed by investment banking titan, Goldman Sachs.

The indices target returns attributable to the momentum, value, quality, size, and low beta equity factors.

The suite, which collectively houses over $1.1 billion in assets under management, also comprises funds offering exposure to global and European equity markets.

This latest fund tracks the Goldman Sachs Equity Factor Emerging Markets Index and aims to deliver consistent outperformance versus traditional emerging markets cap-weighted benchmarks, on both an absolute and risk-adjusted basis.

The underlying methodology assigns five factor scores to each stock within the parent MSCI Emerging Markets Index inverse based on a stock’s exposure to each of the five factors. It then uses an optimization process to weight the stocks such as to maximize the value of an ‘objective function’ that represents the sum of factor scores across all stocks.

This optimization process includes several layers of constraints at the stock, sector, and country levels in order to maintain a similar characteristic profile as the parent index. The final index provides exposure to more than 300 stocks across 30 emerging markets around the world.

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco, commented, “The difficult part for investors has always been how to capture the outperformance potential of individual factors throughout the cycle. The strategy used in our ETF combines factors efficiently, taking into account the volatility and correlations between each factor.

He added: “Until now, factor strategies have focused predominantly on developed markets. However, we’re now seeing the quality of data on emerging market companies improving to the point where we can also capture these long-term drivers of outperformance in these markets. We believe our new ETF offers investors something different for their emerging market exposure.

The ETF charges a management fee of 0.65% and a swap fee of 0.20%. It trades in US dollars. A pound sterling-denominated share class is also available under the ticker EFEP LN.

Coinciding with the new launch, Invesco has trimmed the ongoing charges on the global and Europe versions of the strategy.

The Invesco Goldman Sachs Equity Factor Index World ETF (EFIW LN), which has some $650m in AUM, now comes with a total expense ratio of 0.55%, down from 0.65%, while the Goldman Sachs Equity Factor Index Europe ETF (SMLU LN) with $420m in AUM is now 0.45%, down from 0.55%.

The new EM fund, like its world and Europe counterparts, is swap-based.

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