Invesco slashes fees on three US equity factor ETFs

Aug 21st, 2018 | By | Category: Equities

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Invesco has reduced the fees on three of its US-listed equity ETFs that provide smart beta exposure to the US market.

Invesco slashes fees on three US equity factor ETFs

Invesco has reduced the fees on three of its US-listed equity ETFs that provide smart beta exposure to the US market.

Two of the funds target the dividend and quality factors while the third blends exposure to both value and momentum risk premia.

Dividends

The expense ratio on the Invesco Dow Jones Industrial Average Dividend ETF (DJD US) has been lowered from 0.30% to 0.07%.

The fund, which is listed on NYSE Arca, tracks the Dow Jones Industrial Average Yield Weighted Index which weights dividend-paying stocks from the Dow Jones Industrial Average (DJIA) by their by their 12-month dividend yields. The index is rebalanced on a semi-annual basis.

The DJIA, a price-weighted average of 30 stocks traded on the New York Stock Exchange and the Nasdaq. It is one of the oldest, single most-watched indices in the world and is a reflection of the health of the broad US economy. By reweighting constituents according to dividends, the index is able to boost its dividend yield to 2.7%, up from roughly 2.0% compared to the DJIA.

Following the price cut, the fund is cheaper than the two largest regular DJIA ETFs: the SPDR Dow Jones Industrial Average ETF (DIA US) with fees of 0.17% and over $21bn in AUM, and the iShares Dow Jones US ETF (IYY US) with fees of 0.20% and $1.2bn in AUM.

Quality

The Invesco S&P 500 Quality ETF (SPHQ US), also listed on NYSE Arca, has seen its expense ratio cut from 0.38% to 0.15%.

The fund tracks the S&P 500 Quality Index which selects and weights 100 constituents from the bellwether S&P 500 Index according to a quality score, which is calculated based on three fundamental measures: return on equity, accruals ratio and financial leverage ratio. The index is rebalanced semi-annually.

With over $1.3 billion in AUM, the twenty-three basis point reduction in the expense ratio will result in an annual saving for investors of almost $3m. It will also put the ETF on an equal footing with the comparable $6.0bn iShares Edge MSCI USA Quality Factor ETF (QUAL US).

Value and momentum

The Invesco S&P 500 Value With Momentum ETF (SPVM US), listed on Cboe BZX, has seen its expense ratio cut from 0.30% to 0.15%.

This fund tracks the S&P 500 High Momentum Value Index which includes stocks in the S&P 500 Index that have the highest value and momentum scores. Constituents are selected through a two-step process which first identifies the 200 stocks with the highest value scores and then selects the 100 stocks with the highest positive momentum scores. Rebalancing occurs 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.

Invesco will no doubt be hoping that the fee reduction spurs some interest in the fund. It launched in April 2017 but houses just $3m in assets.

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