Invesco targets size and quality in new strategic ETF family

Sep 14th, 2018 | By | Category: Equities

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Invesco has launched a new range of ETFs in the US harnessing the returns attributable to size and quality factor risk premia.

Invesco targets size and quality in new strategic ETF family

The listings represent a new factor-based strategy from Invesco.

Listed on Nasdaq Exchange, the range includes five equity funds offering a mix of exposures targeting quality across various size and geographic segments.

Theey include: US large- and small-caps, international developed large- and small-caps, and emerging markets.

The funds track proprietary in-house indices based on a core formula to evaluate size and quality.

First, the indices assign business size and quality scores to each stock within their respective equity universes.

Size scores are calculated as an equally weighted average of a company’s relative exposure to four size-based metrics over the past five years: sales, operating cash flow, total return of capital (dividends and share repurchases) and book value.

Quality scores are based on an equally weighted average of the company’s relative exposure to two quality-based metrics: efficiency (calculated as the ratio of sales-to-assets in the prior year) and growth (calculated as the percentage change in the ratio of sales-to-assets over the prior five years).

For the Invesco Strategic US ETF (IUS US), Invesco Strategic Developed ex-US ETF (ISDX US), and Invesco Strategic Emerging Markets ETF (ISEM US), the methodology eliminates the bottom 10% of stocks by business size score. It then selects the highest 80% of remaining securities by quality score to comprise the final index. Constituents are weighted by float-adjusted size scores. IUS, ISDX, and ISEM have expense ratios of 0.19%, 0.23%, and 0.35% respectively.

For the Invesco Strategic US Small Company ETF (IUSS US) and Invesco Strategic Developed ex-US Small Company ETF (ISDS US), the methodology first eliminates the highest 90% of stocks by business size score, thereby sharpening exposure to the low-size (small-cap) factor. The process then selects the highest 80% of remaining securities by quality score and constituents are also weighted by float-adjusted size scores. IUSS and ISDS come with expense ratios of 0.23% and 0.35% respectively.

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