ETC European ETF investors show resilience amid April’s market volatility
April saw European ETF investors add US$18.2bn of net new assets. Read the latest to find out more.
May 22, 2025
Article
A proven, systematic approach to active investing
May 22, 2025
Key takeaways
Systematic active strategies are positioned between pure beta (index trackers) and traditional active (high conviction, stock-picking)
Invesco’s Global Enhanced strategy aims to outperform global equities over the long term while offering a “benchmark-like” experience
The Invesco Global Enhanced Equity UCITS ETF uses 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.
Equity market risk: The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.
Currency risk: The Fund’s performance may be adversely affected by variations in the exchange rates between the base currency of the Fund and the currencies to which the Fund is exposed.
Concentration risk: The Fund might be concentrated in a specific region or sector or be exposed to a limited number of positions, which might result in greater fluctuations in the value of the Fund than for a fund that is more diversified. The Fund is invested in a particular geographical region, which might result in greater fluctuations in the value of the Fund than for a fund with a broader geographical investment mandate.
Securities lending risk: The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults.
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 wider 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.
The Invesco Global Enhanced Equity UCITS ETF aims to outperform the global equity market without deviating far from it. The ETF does 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.
“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.
Our Global Enhanced strategy combines the best of the pure beta and traditional active worlds, offering a high degree of diversification, similar risk profile and low tracking versus a standard benchmark, along with targeted outperformance over the long term. We are using the MSCI World index for performance comparison purposes.
What is Invesco’s Global Enhanced strategy?
Invesco’s Quantitative Strategies (IQS) team has been managing the Global Enhanced strategy for 20 years, establishing a track record of delivering a “benchmark-like” experience while outperforming global equity markets over the long term.
Global Enhanced Equity strategy compared to the MSCI World index
12-month rolling returns
|
31/03/24-31/03/25 |
31/03/23-31/03/24 |
31/03/22-31/03/23 |
31/03/21-31/03/22 |
31/03/20-31/03/21 |
|---|---|---|---|---|---|
Global Enhanced |
8.36% |
30.21% |
-6.10% |
12.30% |
54.58% |
MSCI World |
7.04% |
25.11% |
-7.02% |
10.12% |
54.03% |
Excess return |
1.32% |
5.10% |
0.92% |
2.18% |
0.54% |
Annualised compound rates of return
|
1 year |
2 years |
3 years |
4 years |
5 years |
|---|---|---|---|---|---|
Global Enhanced |
23.18% |
24.16% |
9.09% |
12.81% |
12.86% |
MSCI World |
18.67% |
21.20% |
6.34% |
10.01% |
11.17% |
Excess return |
4.51% |
2.96% |
2.75% |
2.80% |
1.69% |
Source: Invesco, as at 31 March 2025, in USD. “Global Enhanced” represents the net returns of the strategy composite. This is supplemental to the GIPS performance at the bottom of the page.
The strategy aims to deliver an excess return over global equity markets while constraining sector and country exposures compared to those of the broad global equity market. The strategy does not aim to track a benchmark, but the MSCI World Index can be used as a proxy for measuring performance.
The process behind the Global Enhanced strategy
IQS’s proprietary model assesses the attractiveness of equities in a broad 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. Invesco uses a proprietary model portfolio approach to ensure 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.
Source: Invesco, returns are based on the performance of proprietary factor models from Invesco Quantitative Strategies (“IQS”), to 31 December 2024. “Combination” is based on model portfolio from IQS, which allocates to the three individual factor models on an equal risk basis. Past performance does not predict future returns.
Discover our ETF
Find out more about the Invesco Global Enhanced Equity UCITS ETF, which uses the same systematic active approach that the IQS team have been managing for over 20 years, targeting outperformance of global 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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