ETF A new approach to investing in AAA-rated CLOs
Unlocking access to a growing asset class with actively managed ETFs.
October 15, 2025
Article
A proven, systematic approach to active investing
October 14, 2025
Key takeaways
Systematic active strategies are positioned between pure beta (index trackers) and traditional active (high conviction, stock-picking)
Invesco’s Enhanced Equity strategies aim to outperform their respective index over the long term while offering a “benchmark-like” experience
Our ETFs use a systematic approach to generate alpha, by optimising exposure to three factors: Quality, Value, and Momentum
Investment risks
For complete information on risks, refer to the legal documents. Please click here to view the full risks. Value fluctuation, Securities lending, Equity market. Applies to only Invesco Global Enhanced Equity UCITS ETF – Concentration, Currency. Applies to only Invesco Europe Enhanced Equity UCITS ETF - Environmental, Social and Governance.
What are active ETFs?
While active management has a long history in the mutual fund world, active strategies are a relatively new concept within the ETF market. The evolution of active ETFs should not be that surprising, however, when you consider that asset managers are responding to the growing demand and broad adoption of the ETF structure. As the range of strategies expands, active ETFs should be seen as a natural extension to the existing passive and smart beta approaches.
The term “active ETFs” encompasses a wide range of strategies, but the simplest way to think about this category of ETF is that they don’t aim to replicate a benchmark but instead are designed to meet specific objectives such as alpha generation, risk management or income enhancement.
“Beta plus” active strategies fit between pure beta funds that aim to track market-cap-weighted benchmarks and traditional active funds that try to outperform them. You can also find a variety of “beta plus” strategies along this scale, each potentially using different inputs to generate the alpha and different performance objectives and risk tolerance levels.
What are Invesco’s Enhanced Equity strategies?
Our Invesco Enhanced Equity UCITS ETFs aim to outperform their respective regional and single country equity markets, without deviating too far from the reference benchmarks. The ETFs do this by using systematic active inputs to generate alpha, while constraining active positions relative to the benchmark. This systematic “beta plus” approach could be a compelling alternative to traditional core beta exposures.
They combine the best of the pure beta and traditional active worlds, offering a high degree of diversification, a similar risk profile and low tracking versus a standard benchmark, along with targeted outperformance over the long term.
Invesco’s Quantitative Strategies (IQS) team has been managing the Enhanced Equity strategies for over 20 years, establishing a track record of delivering a “benchmark-like” experience while outperforming equity markets over the long term.
Enhanced Equity strategies offer efficient exposure to factor returns
Relative performance since common inception
Source: Invesco, as of 31 August 2025. Performance is net of fees in USD. 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. The back-test is conducted by our dedicated research team using proprietary tools. The data used for the back-test is identical to that employed in the calculation of our systematic strategy for live portfolios. The portfolio construction methodology is the same as for live portfolios. It is an optimization approach whereby investment constraints are considered. This is supplemental to the GIPS performance at the bottom of the page. Invesco Emerging Markets, Japan, UK and US Enhanced Equity UCITS ETFs launch pending.
The strategies aim to deliver an excess return over equity markets while constraining sector and country exposures compared to those of the wider geographical universe. Unlike a traditional passive ETF the strategies do not aim to track a benchmark but do use reference indices to constrain the portfolio and to measure performance.
Example: The process behind the Global Enhanced strategy
All our Enhanced Equity ETFs are built on the same systematic investment approach. To illustrate how the strategy works in practice, we’ll look at the Invesco Global Enhanced Equity UCITS ETF as an example, which uses the MSCI World index for performance comparison purposes.
The IQS team use a proprietary model to assess and rank the attractiveness of equities in a global universe of liquid large- and mid-capitalisation developed market securities. Comparisons are conducted within industry groups in each region to ensure comparability. The starting universe comprises around 3,000 stocks, twice the MSCI World index, providing a greater opportunity set for selecting the model portfolio.
An optimisation process is applied, looking for the best trade-off between the fund’s exposure to Value, Quality and Momentum factors, risk considerations and transaction costs. This proprietary model ensures a broad diversified portfolio both in terms of risk contribution from individual stocks as well as from the three factors. The final portfolio will generally comprise 400-500 stocks. The entire process is repeated monthly.
Why do we target these three factors?
The Value, Quality, and Momentum factors are robustly supported by more than four decades of research into factor portfolios by the IQS team. Moreover, an active strategy allows for the continual refinement and improvement of these proprietary factor models, which now incorporate signals that were impossible to source in the past, such as big data approaches like credit card spending, and other modern techniques such as natural language processing.
But while the factor definitions and the data sets that support them have become more sophisticated, the underlying financial motivations for each factor remain as simple as ever:
Value: Favouring stocks that are inexpensive relative to their peers in expectation that cheap stocks will outperform expensive ones
Momentum: Favouring stocks exhibiting strong price performance in expectation that trends will persist for a while
Quality: Favouring stocks of companies with strong balance sheets in expectation that high quality stocks will outperform low quality
All factors are sector and industry neutral and designed to have a neutral beta to the equity market.
Combining factors has improved returns from any individual factor over time
Certain equity risk factors have demonstrated the potential to outperform the broad market over the long term but individually can be volatile especially over shorter time periods. The ETF aims to reduce that volatility by combining factors with an optimised approach.
Historic performance: Invesco’s proprietary factors
Source: Invesco, as at 31 August 2025, chart shows a comparison of IQS single-and multi-factor strategies, multi-factor here combines quality, value and momentum. Past performance does not predict future returns.
Discover our ETFs
Find out more about our Invesco Enhanced Equity UCITS ETFs, which use the same systematic active approach that the IQS team have been managing for over 20 years, targeting outperformance of equity markets over the long term while delivering a “benchmark like” experience for investors.
An investment in this fund is an acquisition of units in an actively managed fund rather than in the underlying assets owned by the fund.
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