Invesco is throwing its hat into the new "semi-transparent" active ring. The issuer, which manages $286.5 billion between 223 exchange-traded funds, launched four new active ETFs on the Cboe BZX Exchange exchange on Tuesday (Cboe is the parent company of ETF.com).
Two of the ETFs will utilize Fidelity’s active equity ETF model, while the other two will use a newly-approved model from Invesco itself. This allows Invesco to manage these products actively, without disclosing exactly which assets they hold on a daily basis.
IVDG and IVRA have expense ratios of 0.59%, while IVSG and IVLC have expense ratios of 0.48%.
As with all actively-managed equity funds, the performance of these ETFs will largely depend on the stock-picking abilities of the fund managers.
What They Are
The four funds are an eclectic mix. IVDG shoots for a higher risk-higher reward strategy of capital appreciation via early-stage growth companies. The fund will hold “a concentrated portfolio of companies in the early growth phase of their business cycle, typically marked by above average growth rates.”
IVSG is also a growth-focused fund, but with a longer-term bent and one that takes valuation into consideration. The fund will hold “a concentrated portfolio of large and mid-cap stocks with attractive growth outlooks relative to their valuation at the time of purchase.”
IVRA takes a completely different approach with its goal of capital appreciation and income generation. It will put its portfolio in real asset equities, such as real estate, infrastructure, natural resources and timber—types of stocks that typically offer regular distributions to investors. Stocks in the portfolio must meet Invesco’s ESG [environmental, social and governmental] standards to be eligible for inclusion in the fund.
The fourth fund, IVLC, also uses ESG criteria to qualify and disqualify potential holdings. This ETF is designed to serve as a core holding focused on large-cap U.S. equities.
For Invesco, which is best known for ETF giants like the $149 billion Invesco QQQ Trust (QQQ) and the $17 billion Invesco S&P 500 Equal Weight ETF (RSP), this is its first foray into the active non-transparent ETF space. Last year the SEC approved a new rule allowing longer nondisclosure periods for active ETFs than previously allowed.
The firm already has 11 active transparent ETFs on the market, including the Invesco Ultra Short Duration ETF (GSY) and the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC), both with nearly $3 billion in assets.
With IVDG, IVSG, IVRA and IVLC, Invesco hopes it can extend its success into the nascent ETF segment. The first active ETFs with the longer nondisclosure period launched in April, and since then, the number of ETFs in the space has grown to more than a dozen.
All of these ETFs use different models for maintaining this secrecy while keeping the funds’ prices close to their net asset values, as ETFs are meant to do.
In Invesco’s case, its two ESG ETFs will use the “tracking basket” methodology from Fidelity, in which some—but not all—of the ETFs’ holdings will be disclosed daily. This tracking basket can be used by authorized participants to keep the ETFs’ prices close to their net asset values through the creation-redemption mechanism.
Meanwhile, Invesco's two growth ETFs will use a newly-approved active model from Invesco itself. This model uses a "substitute basket" that will give authorized participants "a clear view into each ETF's portfolio value," while shielding the full portfolio from view. The Invesco model offers authorized participants multiple creation and redemption windows throughout the course of the trading day.
Sumit Roy can be reached at [email protected].