[This article appears in our February 2019 issue of ETF Report.]
Just about anyone can launch an exchange-traded fund these days.
But launching funds and scaling up a business to effectively compete with the giants of the ETF world is something else entirely.
With organic growth and strategic acquisitions, Invesco catapulted itself into a comfortable fourth position in the U.S. ETF industry, with more than $167 billion in total U.S.-listed ETF assets under management. It’s still a distance away from the top three—Vanguard, BlackRock and State Street Global Advisors—but also sizably ahead of fifth-place ETF provider Charles Schwab. Globally, the entire firm has roughly $926 billion in assets under management, $233 billion of which is invested in its ETFs.
Dan Draper, managing director and global head of ETFs for Invesco, says when he joined the firm in September 2013, there was strong organic growth, but if Invesco wanted to compete as a top ETF provider, it needed to scale up via mergers and acquisitions.
Acquiring Other Issuers
Invesco acquired the PowerShares ETF business in 2006. The issuer’s first purchase after that transaction came more than three years ago, when it took over Deutsche Bank’s commodity business. Then in 2017, Invesco bought Source, the European ETF specialist.
In early 2018, Invesco purchased Guggenheim, giving Invesco access to the popular BulletShares fixed-income ETFs. In October 2018, Invesco announced a deal to buy OppenheimerFunds, known for its revenue-weighted smart-beta funds. If that deal goes through, it will bring Invesco’s total AUM across its different products and businesses to $1.2 trillion.
Each move was strategic: The Deutsche Bank purchase gave Invesco access to an alternative asset; the Source acquisition was for geographic growth; and the Guggenheim and now Oppenheimer deals were product- and content-driven, Draper notes.
Invesco’s ETF business could grow further as it becomes a greater part of the larger Invesco investment management firm, Draper says, citing Invesco’s CEO Martin Flanagan’s public plans. Flanagan outlined seven key growth drivers for the U.S., Europe and Asia business in early 2018, and specifically flagged the ETF division, Draper says, noting Invesco’s CEO also wants to increase the firm’s institutional presence, focus on client solutions and push its robo advisory service, among other goals.
“What’s interesting is not only are ETFs one of the seven [focus areas], but it’s also described in the other six [as having] a part to play,” Draper said.
Draper called the ETF sector within the larger Invesco business “sort of like a microprocessing chip, helping the processing power within asset allocation and all the models that our solutions team are building.”
This integration in the larger firm will help the ETF side continue to compete with the big three ETF firms, he notes, by building its scale and expanding the breadth of its content.
Invesco is making a big bet on smart-beta/factor investing, too. The Guggenheim and Oppenheimer deals added product depth in that regard. Draper says the S&P 500 Equal Weight ETF (RSP) and the other equal-weighted sector ETFs Guggenheim brought to the table, in particular, had helped round out their equity offerings.
“It was a very interesting technology for us … If you think about our leadership position in smart beta, arguably one of the most effective yet simplest smart-beta [approaches] is equal-weighted,” he said.
Invesco wants to be known as a leader in factor investing. Smart-beta products have been the hot new thing for some ETF issuers, but not for Invesco, says Jason Stoneberg, the company’s director of ETF research.
“It’s deep in our DNA and our roots,” he said, noting the founding of the original PowerShares lineup in 2003 were a type of multifactor quantitative-based indexes to differentiate them from the traditional market-cap-weighted exposure.
Draper said Invesco’s focus on innovation, particularly in the smart-beta/factor investing part of the ETF industry is one way it wants to stand out from the plain-vanilla, market-cap-weighted offers of Vanguard, BlackRock and State Street.
Invesco says it has 261 smart-beta products across its global operations, and Stoneberg notes the firm stands out for its depth, breadth and track record of the product lines. The firm is spending more time helping clients implement smart beta.
“Because we’ve been in the market for so long with these products … we understand how to use these products, understand the different exposures that are in [clients’] portfolios and how these smart-beta and factor-based products can fit to achieve different outcomes,” Stoneberg said. “Because of the product line, we felt we’re able to focus on that next level of a partnership with our clients to use them.”