Four new Invesco ETFs each open by naming an index, and then explain, quite firmly, that they are not index funds.
Invesco Enhanced range (IQEL, IQES, IQEI and IQEE, NYSE Arca)
The benchmarks are as mainstream as benchmarks get: the Russell 1000, the Russell 2000, MSCI World ex USA and MSCI Emerging Markets. Each prospectus then states, “Unlike conventional ETFs, the Fund is not an index fund.” It merely has an index, will hold many of its constituents, and would like to be judged against it.
The method is a multi-factor model that scores value, momentum and quality, weighted so that each factor contributes roughly equally to portfolio risk. The funds will hold “significantly less” than the full benchmark, and the stated aim is to “enhance” risk-adjusted returns. No tracking-error target is given, which leaves the word “enhanced” doing a great deal of unsupervised work.
It is the same factor trio behind Invesco’s European enhanced equity UCITS range, and one of the named portfolio managers sits at the Luxembourg management company. Strategies usually cross the Atlantic going east. This one has made the return journey.
The fees climb neatly with the difficulty of the market: 0.15% for US large caps, 0.23% for developed international, 0.26% for US small caps and 0.33% for emerging markets. The US large-cap fund is cheaper than Invesco’s own global enhanced UCITS fund, which charges 0.24%, so the product has come home and had its price cut on arrival.
The emerging markets fund warns that it expects to hold more than 25% in Taiwan. That is less a forecast than a description of the benchmark, and a reminder that an active fund in emerging markets is mostly an opinion about a handful of chipmakers.
Amundi S&P US High Dividend Yield UCITS ETF (DIVY, London Stock Exchange)
The index behind this fund is the S&P U.S. Dividend 100, which shares a rulebook, a universe and most of a name with the Dow Jones U.S. Dividend 100, the index behind one of the most popular dividend ETFs in America. Both exclude REITs, both start from the same broad US market, and both pick 100 stocks.
The S&P version adds business-involvement exclusions and a median-yield threshold, then weights by market cap multiplied by dividend yield rather than by market cap alone. It also caps any single stock’s yield at 20% for weighting purposes. An index that needs a rule for 20% dividend yields has clearly met some interesting companies.
European investors have spent years asking for a UCITS version of that famous American dividend fund. What they now have is its close cousin, at 0.35%.
Betashares Fixed Rate Australian Major Bank Subordinated Debt ETF (TIR2, ASX)
When Betashares launched its floating-rate major bank subordinated debt ETF, BSUB, the selling point was that floating coupons offer some protection when interest rates rise. That fund holds Tier 2 bonds from the big four Australian banks and has a modified duration of barely a tenth of a year.
The new fund holds subordinated debt from the same four banks, with fixed coupons. In other words, it puts the interest-rate risk back. Taken together, the pair let an investor decide separately how much they trust the banks and how much they trust the Reserve Bank, which is a genuinely useful thing to be able to do.
The ticker is the most informative part of the launch so far. TIR2 tells you exactly where in the capital structure you are standing.
Delistings: Intelligent Real Estate ETF (REAI) and Residential REIT ETF (HAUS)
Two small real estate funds have closed. Trade coverage put the residential fund at around $7 million and the intelligent one at under $1 million. In a fund industry that rewards marketing, the fund named “Intelligent” attracted the least money, which may itself be a sign of intelligence among investors.
Both charged around 0.6% in a sector where the broad index funds charge a fraction of that. Specialism is a fine thing, but it has to be paid for by someone, and in the end nobody volunteered.
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