A government pension plan wanted a factor strategy to improve the risk-adjusted returns of traditional US equity beta exposure while limiting tracking error.
Start with an S&P parent universe and target three well-established factors — quality, value, and momentum — while taking steps to reduce tracking error.
The client seeded three new ETFs with Invesco to complement traditional beta exposure, with the ability to quickly adjust exposures as part of their quarterly asset allocation process.
Improve the risk-adjusted returns of traditional US equity beta exposure while limiting tracking error — a government pension plan wanted a factor strategy designed to meet this goal. We partnered with the client and S&P Dow Jones Indices to develop a new family of three multi-factor indices and ETFs: the Quality Value Momentum (QVM) Multi-factor Suite.
Equity factor investing seeks to identify the stocks of companies with certain quantifiable characteristics that have been shown to contribute meaningfully to returns over time. It’s become a standard solution for institutional investors who are seeking to optimize returns and enhance portfolio diversification.
The QVM methodology starts with a traditional S&P equity universe. It then ranks each stock based on a composite quality, value, and momentum score, and removes the bottom 10% of stocks with the lowest scores. The portfolio is weighted by float-adjusted market capitalization.
Eliminating a small percentage of stocks from the parent index and weighting the remaining positions by market capitalization helps keep tracking error low.
This strategy is available in three ETFs based on the S&P 500 Index, S&P MidCap 400 Index, and S&P SmallCap 600 Index.
The ETFs were launched on June 30, 2021, so they have a live performance track record longer than three years.
The pension plan used these ETFs as a complement to traditional US equity beta exposure. The funds give the client the ability to quickly adjust exposures as part of their quarterly asset allocation process.
For institutional investors interested in potentially harvesting factor premia, but who are unable or unwilling to assume significant tracking error, this approach may be optimal.
Institutional investors are increasingly using ETFs for their efficiency, cost-effectiveness, liquidity, and ability to quickly implement investment views.
Explore our ETF capabilities for institutional investors, and contact to discuss your objectives and how we can help strengthen your portfolios with the flexibility of ETFs.
A government pension plan sought to establish a new private credit portfolio following a large cash distribution. After exploring public market proxies with a high correlation to private credit, they allocated to the Invesco Senior Loan ETF (BKLN).
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The opinions referenced above are those of the author as of June 25, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Invesco is not affiliated with the S&P Dow Jones Indices
Companies that issue quality stocks may experience lower than expected returns or may experience negative growth, as well as increased leverage, resulting in lower than expected or negative returns to Fund shareholders.
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.
Momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole or returns on securities that have previously exhibited price momentum are less than returns on other styles of investing.
Investments focused in a particular sector, such as information technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
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