Invesco Adds 2 Factor Based Bond ETFs

December 06, 2018

Today, Invesco has added to its growing lineup of factor-based fixed-income ETFs with the launch of two funds. The Invesco Multi-Factor Defensive Core Fixed Income ETF (IMFD) and the Invesco Multi-Factor Income ETF (IMFI) join two other multifactor bond ETFs and a host of single-factor bond ETFs from Invesco that are already trading in the U.S.

IMFD and IMFI come with expense ratios of 0.12% and 0.16%, respectively. Both list on Cboe Global Markets, parent company of ETF.com.

Methodology

Both ETFs track indexes that comprise multiple subindexes. IMFD’s underlying index weights the Invesco U.S. Treasury 1-3 Years Index at 55%, the Invesco U.S. Fixed Rate 30-Year MBS Index at 20%, the Invesco Investment Grade Defensive Index at 15%, and the Invesco Emerging Markets Debt Defensive Index at 10%, with the full index including 200-500 individual securities.

Meanwhile, IMFI’s underlying index is somewhat different, with more subindexes and added exposure to the value factor.

It includes the Invesco U.S. Fixed Rate 30-Year MBS Index weighted at 25%; the Invesco Emerging Markets Debt Value Index weighted at 15%; the Invesco High Yield Defensive Index weighted at 15%; the Invesco Investment Grade Value Index weighted at 15%; the Invesco Emerging Markets Debt Defensive Index, weighted at 10%; the Invesco High Yield Value Index, weighted at 10%; and the Invesco Investment Grade Defensive Index weighted at 10%. Typically, it includes 500-1,000 securities, according to the prospectus.

­­­­Income Focus

Jay Raol, Invesco’s director of IFI quant research, says the ETFs are primarily focused on value and quality.

“All we’re doing is systematizing certain types of strategies and harvesting premiums that are employed by active managers,” Raol said. “We have primarily decided to focus in these ETFs around value and what we call quality.” 

He notes the funds target those factors across U.S. investment grade, high yield and emerging markets, and says that, with tail risk in mind, the exposures have been weighted so that no single factor will overly drive any losses.

Raol describes the new funds as more outcome-focused than Invesco’s existing multifactor bond funds, which he labeled benchmark-focused, in that they do not try to deviate too much from or take on much more risk than the Barclays Aggregate Bond Index.

That would be more descriptive of the Invesco Multi-Factor Core Plus Fixed Income ETF (IMFP) and the Invesco Multi-Factor Core Fixed Income ETF (IMFC), which launched over the summer and are the other two multifactor bond ETFs in this particular family. 

“They [the new funds] are not really designed to track closely with a particular benchmark, but they are designed to provide income,” said Raol. 

“Given the demographic situation happening in the country, we expect there to be a large demand for income-oriented products,” he added. The two funds offer different flavors of income for clients, he says, with IMFD offering more of a pure duration and low-risk income fund, while IMFI provides a lot more income and yield.

“They are two ways to potentially get income in the portfolio, depending on investors’ risk/return appetites,” Raol said.

Contact Heather Bell at [email protected]

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