Invesco launches its first active semi-transparent ETFs

Jan 7th, 2021 | By | Category: Equities

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Invesco has introduced its first actively managed semi-transparent ETFs in the US.

Invesco launches its first active semi-transparent ETFs

Invesco has launched its first actively managed semi-transparent ETFs in the US.

The four funds, which listed on Cboe BZX Exchange in December, leverage Invesco’s active management capabilities while shielding its proprietary research.

But despite protecting the asset manager’s in-house research insight, the funds retain many of the characteristics that investors find attractive in an ETF structure, including an effective arbitrage mechanism, tax efficiency, and intraday tradability.

The funds combine Invesco’s exclusive active non-transparent ETF model with Fidelity’s proprietary active equity ETF methodology.

The Invesco active non-transparent model publishes key data metrics each day by using a ‘substitute basket’ to offer a clear view into each ETF’s portfolio value, thus providing multiple creation and redemption windows to authorized participants throughout the day.

The ETFs’ holdings are not fully disclosed, however, thereby maintaining the confidentiality of the underlying strategies and helping to mitigate the risk of front-running by keeping a portion of the funds’ holdings shielded from the market.

Fidelity’s active equity model, meanwhile, utilizes a ‘tracking basket’ methodology to maintain the benefits of the ETF structure while still providing information to market participants to promote efficient trading of shares and preserve the ability to add value through active management. This ‘tracking basket’ is disclosed daily and is used to facilitate the creation and redemption process.

Citadel Securities has been named the lead market maker for the ETFs.

Anna Paglia, Global Head of ETFs and Indexed Strategies at Invesco, commented, “[This] announcement is more than a product launch, it is another step towards Invesco’s goal to offer a range of innovative investment products that help clients pursue their desired outcomes.

“Our four active non-transparent ETFs offer a bridge between traditional active and passive strategies, harnessing the strength of Invesco’s active managers within an ETF wrapper.”

Laura Morrison, Global Head of Listings at Cboe Global Markets, said, “We are pleased to assist Invesco in bringing their latest ETF innovation to the market and look forward to supporting their continued success. Cboe has been laser-focused on the evolution of this new class of active ETFs and is committed to providing best-in-class market quality and liquidity in the space.”

The four funds include three equity ETFs seeking long-term capital appreciation, as well as one real asset ETF that aims to balance capital appreciation with current income.

The Invesco US Large Cap Core ESG ETF (IVLC US) invests in US large-caps that meet certain environmental, social, and governance (ESG) standards. The fund may invest up to 20% of its assets in non-US companies including up to 10% in emerging market stocks. The ETF has an expense ratio of 0.48%.

The Invesco Select Growth ETF (IVSG US) invests in a concentrated portfolio (typically less than 30 holdings) of large and mid-cap stocks with attractive growth outlooks relative to their valuations. The fund will invest at least 75% of its assets in companies that are either US-listed or derive at least 50% of their revenue from within the US. The ETF’s expense ratio is also 0.48%.

The Invesco Focused Discovery Growth ETF (IVDG US) also invests in a concentrated portfolio of companies, targeting those in the early growth phase of their business cycle, typically marked by above-average growth rates. The fund is expected to focus on the mid-cap size segment and will also invest more than 75% of its assets in US issuers. The ETF has an expense ratio of 0.59%.

Security selection for the above three ETFs is driven by a fundamental approach based on financial performance, company strength and prospects, industry position, and business model and management strength.

The Invesco Real Assets ESG ETF (IVRA US), meanwhile, invests in real asset equities, including real estate, infrastructure, natural resources, and timber. Constituents must also meet Invesco’s ESG standards. Security selection is driven by a factor methodology that favours firms with a balanced mix of long term fundamental growth, sustainable dividends, attractive physical and locational attributes, and capital structure viability. The ETF’s expense ratio is also 0.59%.

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