Global Equities Equal weight ETFs: reducing market concentration
24 September 2026
Insight Systematic active ETFs: Redefining core equity exposure
Key takeaways
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Systematic active ETFs can offer “index-like” exposure with the potential for long-term outperformance.
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An effective strategy should combine proven sources of alpha with robust risk controls – both are critical.
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Systematic should not mean static. Active oversight is essential to ensure that strategies continue to evolve and improve over time.
As ETFs are more widely adopted, they are bridging the historical divide between pure passive index trackers, the traditional domain of ETFs, and high-conviction active funds. Today, investors can access ETFs with an array of different performance objectives and risk tolerances.
Systematic active strategies (“beta-plus”) are designed to replace core beta exposure and are among the fastest-growing segments. While there are various approaches, these strategies typically share two key characteristics:
- A set of quantitative signals or factors used to select and weight securities
- Portfolio constraints that limit active risk relative to the benchmark (often with a stated target tracking error)
The growth of this part of the ETF market is unsurprising. Systematic active ETFs can provide a compelling alternative to traditional core beta exposures, combining a similar risk profile to market benchmarks with the potential for excess returns. In theory, they seek the best of both worlds: the efficiency and diversification of passive investing alongside the opportunity to outperform.
To see how these strategies work in practice, let’s look at Invesco’s Enhanced Equity ETF range.
How our Enhanced Equity strategies work
Our range of Invesco Enhanced Equity UCITS ETFs follow a systematic strategy that aims to outperform the relevant market benchmark while maintaining a benchmark-like risk profile. To generate alpha, the strategy uses three well-known active inputs: Value, Quality and Momentum. It then applies a set of portfolio constraints, including limits on country and sector exposure, to manage risk relative to the benchmark.
Let’s consider the Invesco Global Enhanced Equity UCITS ETF as an example. Around 3,000 large- and mid-cap stocks from global developed markets are considered for inclusion, a much broader opportunity set than the ETF’s benchmark, the MSCI World Index. An optimisation process balances exposure to Value, Quality and Momentum with risk considerations and transaction costs, while helping to diversify risk across individual stocks and the three factors. The resulting portfolio typically comprises 400-500 stocks and targets a tracking error of 1.0% to 1.5% relative to the MSCI World Index. The process is repeated monthly.
Behind the range is Invesco Quantitative Strategies (IQS), a global team specialising in systematic, factor-based investing. While the first Enhanced Equity ETF launched in 2025, IQS has managed the underlying Enhanced Equity strategies for more than 20 years, drawing on over four decades of research into factor investing.
That long-running approach is now available through a growing range of Enhanced Equity ETFs. Global was the first, followed by regional and single-country exposures including Europe, Emerging Markets, and the US, with the range continuing to expand. Chart 1 shows how the Enhanced Equity approach has performed across different regions.
Why Value, Quality and Momentum?
Each of the three factors has a distinct investment rationale and captures a different potential source of return:
- Value: Favours stocks that are inexpensive relative to their peers, in the expectation that they will outperform over time.
- Quality: Favours companies with strong balance sheets, in the expectation that higher quality businesses can deliver better long-term returns.
- Momentum: Favours stocks with strong recent price performance, in expectation that trends will persist for a while.
From factor selection to portfolio construction
Value, Quality and Momentum are established investment concepts, but how they are defined and measured has continued to evolve. While the principles behind each factor have remained broadly consistent, IQS has continued to refine the methods and data used to identify them.
This is where an active approach is critical. Our proprietary factor models are continually refined to incorporate new insights and advances in technology. For example, techniques such as natural language processing and big data allow us to capture signals, such as credit card spending, that were previously inaccessible.
Identifying the attractiveness of stocks is only the first step. The next challenge is how to combine multiple factors. While Value, Quality and Momentum have each outperformed over the long term, performance can be cyclical and uneven over shorter time periods.
The Enhanced Equity strategy addresses this by combining the three factors within a single optimisation process, rather than relying on any one factor in isolation (see Chart 2).
Finally, portfolio construction is one of the most important, yet frequently overlooked, aspects of a “beta plus” strategy. As well as capturing alpha from the factor exposures, the portfolio must also maintain a risk profile aligned with the chosen benchmark. To achieve this, the Enhanced Equity strategies apply limits on sector, country and individual stock weights relative to the benchmark, while also considering liquidity, turnover and implementation costs.
Annualized Periods
YTD |
1 years |
3 years |
5 years |
10 years |
Since inception |
|
|---|---|---|---|---|---|---|
Global Enhanced |
13.45% |
26.80% |
22.58% |
14.74% |
14.25% |
10.27% |
MSCI World Index |
10.26% |
20.41% |
18.14% |
11.19% |
12.73% |
8.92% |
Europe Enhanced simulation |
13.60% |
25.63% |
17.89% |
12.97% |
10.95% |
6.27% |
MSCI Europe Index |
11.82% |
22.09% |
14.00% |
10.11% |
9.33% |
4.87% |
Emerging Markets Enhanced simulation |
23.09% |
38.52% |
22.21% |
10.84% |
10.85% |
10.46% |
MSCI Emerging Markets Index |
20.04% |
36.44% |
19.33% |
8.03% |
9.19% |
9.06% |
Japan Enhanced simulation |
19.57% |
41.47% |
24.22% |
20.59% |
14.66% |
6.87% |
MSCI Japan Index |
18.81% |
39.96% |
22.28% |
18.49% |
14.18% |
6.20% |
UK Enhanced simulation |
11.72% |
23.84% |
18.41% |
13.97% |
9.78% |
9.67% |
FTSE All Share ex Investment Trusts |
11.29% |
21.90% |
15.82% |
12.08% |
8.64% |
8.70% |
US Enhanced simulation |
11.59% |
22.58% |
21.75% |
14.52% |
15.56% |
9.79% |
S&P 500 Index |
9.92% |
19.22% |
19.04% |
12.70% |
15.00% |
8.98% |
All Country Enhanced |
14.97% |
28.89% |
22.38% |
- |
14.28% |
14.32% |
MSCI ACWI |
11.33% |
22.11% |
18.30% |
- |
10.85% |
11.05% |
Source: Invesco, as of 31 July 2026. Performance is gross of fees in USD. This presentation of Invesco is supplemental information to the GIPS® compliant presentations. The data source is the Invesco Global Enhanced return. Performance results do not reflect the deduction of investment advisory fees. A client’s actual return will be reduced by the advisory fees and any other expenses which may be incurred in the management of an investment advisory account. Return periods less than one year are not annualized. Please see Appendix for more information.
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