Factor Investing

It is our conviction that the greatest opportunity for investors to achieve their unique objectives is through a well-constructed portfolio that spans asset classes.

As a tactical play, factors can be used to implement market forecasts; however, we believe they may become even more compelling when combined as strategic core holding. PowerShares by Invesco now offers one of the broadest factor suites with some of the most recognized index providers in the industry. Explore each factor below and download our research paper.

Low volatility in focus

We believe managing the impact of volatility is critical when pursuing long-term investment goals — that's why PowerShares offers the industry's largest suite of S&P Low Volatility ETFs, so you can choose the strategy that's right for your needs.

A core allocation to low volatility might help:

  • Buffer portfolios during down markets
  • Provide growth during up markets
  • Generate attractive returns across full market cycles

In the current market environment, many might consider an amplified allocation to low volatility.

To further explore the opportunity for low volatility investing

Visit our strategy page to gain insight into the methodology, click here.


Build a low volatility core using ETFs

Momentum in focus

Investors tend to either over or under react to market events, commonly referred to as "herding". The momentum factor seeks to capitalize on the market inefficiencies caused by this phenomenon, ranking stocks by relative performance then selecting and weighting stocks based upon their past performance (price momentum).

A core allocation to momentum might help:

  • Enhance return when markets show signs of changing rates and strong dollar*
  • Compliment or replace an allocation to growth
  • Generate attractive return across full market cycles

Add momentum to your core:

*In declining, flat and rising 10 – year interest rate environments the momentum factor historically provided annualized excess return over the S&P 500 Index by 4.2%, 2.2% and 2.8% respectively. In strong dollar environments the momentum factor historically provided annualized excess return over the S&P 500 Index of 4.7%. Download the white paper for more information. Past performance cannot guarantee future results. An investment cannot be made in an index.

Source: FactSet Research Systems as of Dec. 31, 1991 through June 30, 2015

The momentum factor is represented by the top 20% of stocks with the highest 12-month price return of the market-cap-weighted S&P 500 index.

Flat 10-year interest rate environments are when rates have changed by less than 0.4%.

Rising 10-year interest rate environments are when rates have increased by 0.4% or more.

Declining 10-year interest rate environments are when rates have declined by 0.4% or more.

Strong dollar environments are periods when the US dollar increased in value against a basket of currencies encompassing the euro, Canadian dollar, Japanese yen, British pound, Swiss franc and Swedish krona.

Quality in focus

When markets become volatile, investors historically may choose to "flee to high-quality" or cash. However, maintaining a long-term allocation to quality stocks may be a better approach.

The rationale for quality stocks include:

  • Strong fundamentals – Quality stocks are typically issued by companies with strong balance sheets and stable earnings growth
  • Added risk mitigation – Quality stocks have historically outperformed lower-quality shares during periods of escalating market volatility. (Similarly, quality stocks can lag during periods of falling market volatility.)*
  • Balance sheet focus – Considers often-overlooked balance sheet metrics that can be important drivers of stock returns

Add quality to your core:

*In high volatility environments the quality factor historically provided annualized excess return over the S&P 500 Index based on the level and direction of the VIX Index by 4.2% in low volatility environment (but increasing), 4.9% in high volatility environment (and increasing) and 5.4% in high volatility environment (but declining). Download the white paper for more information. Past performance cannot guarantee future results. An investment cannot be made in an index.

Source: FactSet Research Systems as of Dec. 31, 1991 through June 30, 2015

The quality factor is represented by the top 20% of stocks with the highest return on equity in the market-cap-weighted S&P 500 index.

The VIX Index represents the CBOE Volatility Index® (VIX®) which measures near-term volatility expectations.

High volatility environment is when VIX is above 20.

Low volatility environment is when VIX is below 20.

Value in focus

Negative news can cause some investors to overreact and sell out of fundamentally strong positions. This can lead to dislocations in stock prices, providing an opportunity to "make a value play" that seeks to capture excess return should stocks revert back to their intrinsic value.

A core allocation to value might help:

  • Implement a value play, systematically
  • Enhance return when economic cycles create mis-pricing
  • Generate enhanced absolute and risk-adjusted return across market cycles

Add value to your core:

Size in focus

Consider smaller companies for a source of potential excess return as they may grow faster than large companies and the overall economy. In addition, small cap companies may offer a return premium due to increased risk and reduced liquidity relative to large cap companies.

A core allocation to small cap might help:

  • Generate enhanced absolute and risk-adjusted return
  • Diversify away from large cap stocks
  • Provide multi-factor exposure when combined with other factors

Add small cap to your core:


Return on equity (ROE) is net income divided by net worth.

Volatility is the annualized standard deviation of index returns. There is no guarantee the funds will provide low volatility.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index.

Certain funds are considered non-diversified and may be subject to greater risks than a diversified fund.

The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.

The momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole, or that the returns on securities that have previously exhibited price momentum are less than returns on other styles of investing.

A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock market.

Certain funds are non-diversified and may experience greater volatility than a more diversified investment.

Investing in securities of small capitalization companies involves greater risk than customarily associated with investing in larger, more established companies.

Diversification does not guarantee a profit or eliminate the risk of loss.

Note: Not all products are available through all firms