Invesco has launched two new smart beta equity ETFs offering exposure to US large-cap value stocks with strong momentum and US small-cap stocks with quality characteristics. The new launches bring the total number PowerShares factor ETFs to 78.
Jason Bloom, Global Market Strategist at PowerShares by Invesco.
The PowerShares S&P 500 Value with Momentum Portfolio (Bats: SPVM) tracks the S&P 500 High Momentum Value Index, which is designed to measure the performance of 100 stocks within the bellwether S&P 500 with attractive valuations that have also demonstrated positive momentum.
The first step screens for value based on three price metrics: price-to-book, price-to-earnings and price-to-sales, with the 200 most attractively valued stocks selected for a momentum screen. From the 200 stocks, the 100 with the highest positive momentum score are then selected for inclusion in the index. Stocks are weighted by their value score and rebalanced semi-annually.
According to Invesco, the methodology provides a more robust approach to the value factor. Specifically, by using a momentum overlay, SPVM seeks to identify early movers with upward price movement while also avoiding value traps, instances when a stock appears cheap because it is trading at low multiples of earnings, cash flow or book value, but the stock price remains low and doesn’t improve.
The largest sector, accounting for just under a third of the total exposure in the ETF, is to financials, followed by utilities (20.1%), industrials (10.4%) and health care (8.7%).
The fund has a total expense ratio (TER) of 0.30%.
The PowerShares S&P SmallCap Quality Portfolio (Bats: XSHQ) tracks the S&P SmallCap 600 Quality Index, which is designed to measure the performance of the 120 highest-quality companies within the S&P SmallCap 600 Index by selecting securities based on an average of three quality metrics: profitability, earnings quality and financial risk.
The quality screens implemented in XSHQ seek to enhance risk-adjusted returns by investing in companies with strong balance sheets and proven profitability and earnings quality as measured by accruals. Each stock is weighted by the total of its quality score multiplied by its market capitalization; stocks with higher scores receive relatively greater weights. The index is also rebalanced semi-annually.
The ETF holds a quarter of its exposure in industrial stocks, while consumer discretionary (22.4%), information technology (19.4%) and financials (16.9%) make up the next largest sector exposures.
It has a TER of 0.29%.
“We’re putting client outcomes and investment preferences at the centre of our product development process,” said Jason Bloom, Global Market Strategist at PowerShares by Invesco. “Working closer with clients to understand their unique investment objectives has led to more strategic ETF solutions that have purpose in a portfolio.”
“S&P Dow Jones Indices has seen an increased popularity of its factor indices, and most recently, a growing interest in capturing multiple factors within one benchmark,” added Vinit Srivastava, Managing Director of Strategy Indices at S&P Dow Jones Indices. “For market participants, the S&P 500 High Momentum Value Index and the S&P SmallCap 600 Quality Index are examples of how factors may be combined or applied across capitalizations. We are happy to be working with PowerShares in bringing these indices to market.”