Pure Style

Upgrade your style: The potential benefits of a pure style approach

The primary objectives of style investing are to improve performance and reduce overall risk through targeted exposure to value and growth stocks. But what if a portfolio's value allocation contains growth stocks, or vice versa? The intended style tilt is thrown off, which may cause unexpected and disappointing results.

To help achieve style accuracy, it's vital that investments reflect low value-to-growth correlations. Created in 2005, the S&P Pure Style indices were designed to outperform traditional style approaches by seeking to provide comprehensive and precise style segregation and an alternative weighting methodology.

Uses of Pure Style ETFs

Invesco's S&P Pure Style suite of ETFs reduces style overlap and offers investors access to true value and growth opportunities that can be used for:

  • A focused style approach
    Allows you to take a more focused approach to value and growth style investing by eliminating stocks with overlapping characteristics.
  • Adding a style tilt
    May be used to overweight value or growth as an enhancement to an existing broad market investment strategies.
  • Exposure to value and growth without overlap
    May be used in tandem to capture the potential benefits of both value and growth stocks simultaneously, without diluting the performance contribution of each style or owning overlapping stocks.

Why Pure Style

The shortcomings of traditional style investing

Traditionally, most style methodologies use all the stocks in the parent index, identify them as either value or growth, assign them to their respective indices and weight them by market cap. However, this approach results in style overlap—the inclusion of stocks with no definitive style characteristic. Additionally, cap weighting creates a large-cap bias that can favor overvalued stocks. These shortcomings may marginalize investor returns.

Style overlap

The Russell 1000 Value Index and Russell 1000 Growth Index are traditional indices that provide an example of style overlap. Roughly one-third of the market capitalization in the parent Russell 1000 Index is typically identified as value stocks and one-third as growth stocks, with each constituent group included in their respective style indices. However, the remaining 30% of stocks lack distinctive value or growth characteristics. These "style ambiguous" stocks are often shared by both the Russell 1000 Value Index and Russell 1000 Growth Index.

Style overlap in Russell 1000 traditional style indices

Source: FactSet Research Systems, Inc., as of March 31, 2018. Subject to change on a daily basis. The securities mentioned are provided for illustrative purposes only and should not be deemed as a recommendation to buy or sell. An investment cannot be made into an index.

S&P's traditional value and growth indices—the S&P 500 Value Index and S&P 500 Growth Index—can suffer from the same shortcoming. Roughly one-third of S&P 500 constituents are style ambiguous, thus often shared by both the S&P 500 Value Index and S&P 500 Growth Index.

Style overlap in S&P 500 traditional style indices

Source: FactSet Research Systems, Inc., as of March 31, 2018. Subject to change on a daily basis. The securities mentioned are provided for illustrative purposes only and should not be deemed as a recommendation to buy or sell. An investment cannot be made into an index.

A smart beta solution: The Pure Style approach

In 2005, S&P Dow Jones Indices created a series of pure style indices. S&P's goal was to deliver truer style performance by more effectively isolating the attributes of value and growth stocks. Pure Style indices are designed to deliver:

  • Precise style access: The S&P Pure Style methodology is a smart beta approach that screens stocks according to fundamentals—price, sales and earnings multiples in the case of value stocks, and price, sales and earnings momentum in the case of growth stocks. Stocks are then assigned a style score and weighted accordingly. Those with weak (or no) style scores are excluded.
  • Potential outperformance: By eliminating style overlap, S&P's more precise methodology offers the potential for outperformance, particularly in strong style markets. However, because of their targeted approach, Pure Style ETFs can underperform when their style is out of favor.
  • Alternative weighting methodology: By weighting stocks according to style scores rather than market capitalization, the S&P Pure Style approach provides a smart beta alternative that severs the link between a stock's price and its weight within the index.

How Pure Style delivers targeted exposure

For illustrative purposes only.

Pure Style access

Invesco offers a full suite of large-, mid- and small-size Pure Style ETFs—each with a demonstrated track record since their inceptions on March 1, 2006.

*Since inception

Because of differences between the S&P Pure Style and Lipper peer group classification methodologies, the funds' respective peer groups may not align with their S&P style box.

Source: Lipper, as of March 31, 2018. RPV: Lipper Multi-Cap Value Funds as of March 31, 2018. The one-year peer group rank is 15% (51 of 354), the three-year rank is 26% (77 of 306), the five-year rank is 5% (13 of 269) and ten-year rank is 5% (9 of 211). RFV: Lipper Small-Cap Value Funds as of March 31, 2018. The one-year rank is 35% (101 of 290), the three-year rank is 29% (71 of 252), the five-year rank is 31% (68 of 219) and ten-year rank is 22% (32 of 148). RZV: Lipper Small-Cap Value Funds as of March 31, 2018. The one-year rank is 73% (210 of 290), the three-year rank is 84% (211 of 252), the five-year rank is 58% (126 of 219) and ten-year rank is 37% (55 of 148). RPG: Lipper Multi-cap Growth Funds as of March 31, 2018. The one-year rank is 31% (148 of 487), the three-year rank is 47% (205 of 439), the five-year rank is 23% (87 of 385) and ten-year rank is 4% (11 of 279). RFG: Lipper Small-Cap Growth Funds as of March 31, 2018. The one-year rank is 68% (371 of 550), the three-year rank is 81% (390 of 481), the five-year rank is 85% (373 of 441) and ten-year rank is 13% (41 of 335). RZG: Lipper Small-Cap Growth Funds as of March 31, 2018. The one-year rank is 74% (405 of 550), the three-year rank is 33% (157 of 481), the five-year rank is 19% (82 of 441) and ten-year rank is 10% (31 of 335). Since inception Lipper Rank data begins the month-end date of the ETF's inception month. Lipper fund percentile rankings are based on total returns, excluding sales charges and including fees and expenses, and are versus mutual funds, ETFs and funds of funds in the category tracked by Lipper. Past performance is no guarantee of future results.

Pure Style product offerings

Risk & Other Information

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 those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.

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

Investments focused in a particular sector, such as consumer discretionary, energy, financials, industrials and information technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

Stocks of small-capitalization companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale than large companies.

Investing in securities of large-cap companies may involve less risk than is customarily associated with investing in stocks of smaller companies.

Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

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 markets.

Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions.

Note: Not all products are available through all firms.

Before investing, investors should carefully read the prospectus/summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund call 800 983 0903 or visit invesco.com for the prospectus/ summary prospectus.

Book Value to Price ratio is the book value per share of a stock divided by its market price.

Book Value to Price ratio is the book value per share of a stock divided by its market price.

Earnings to Price ratio is the annual earnings per share of a stock divided by its market price.

Sales to Price ratio is the trailing 12-month's sales per share of a stock divided by its market price.

Beta is a measure of risk representing how a security is expected to respond to general market movements. Smart Beta represents an alternative and selection index based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both in active or passive vehicles. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.

Correlation is the degree to which two investments have historically moved in relation to each other.

The S&P 500 500 Value Index is an unmanaged index considered representative of large-cap value stocks.

The S&P 500 Growth Index is an unmanaged index considered representative of large-cap growth stocks.

The Russell 1000 Index is an unmanaged index considered representative of large-cap stocks.

The Russell 100 Value Index is an unmanaged index considered representative of large-cap value stocks.

The Russell 2000 Growth Index is an unmanaged index considered representative of small-cap growth stocks.

The Russell indexes are a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co., ftserussell.com.

S&P® is a registered trademark of Standard & Poor's Financial Services LLC (S&P) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). These trademarks have been licensed for use by S&P Dow Jones Indices LLC. S&P® and Standard & Poor's® are trademarks of S&P® and Dow Jones® is a trademark of Dow Jones. These trademarks have been sublicensed for certain purposes by Invesco Capital Management LLC. The index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Invesco. The fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates make any representation regarding the advisability of investing in such product(s).