What’s driving institutional adoption of equity factor ETFs?
Initially seen as retail products, equity factor ETFs are now widely used by institutional investors. These ETFs grew from $390 billion AUM in 2014 to $2.07 trillion in 20241. They can serve various roles in portfolios, from making short-term portfolio adjustments to serving as long-term allocations. MERS of Michigan’s Chief Investment Officer Jeb Burns, S&P Dow Jones Indices’ Head of Factors and Dividends Rupert Watts and Invesco’s Head of Asset Owner ETF Specialists Garrett Glawe discuss the benefits of equity factor ETFs, which group stocks with similar characteristics to generate excess returns.
Watch the full webinar to see what the panel had to say:
Our Highlights:
Jeb Burns opened the webinar by discussing MERS’ investment portfolio and approach. They invest 70 to 75% of their total portfolio in public markets using an internal, long-term valuation model. They’ve become major adopters of ETFs because they allow the investment team to quickly express their views, adjust exposures, and build internal portfolios. Jeb shared his view that all investment decisions are active. Choosing a particular index to represent a part of the market is an active decision, as is choosing between a factor-based and broad beta approach.
Rupert Watts noted that over the past decade, factor investing has been embraced by both retail and institutional investors. Over a long period of time, many factors have exhibited better risk-adjusted returns than the broad market. Rupert explained that single factor products can serve as portfolio building blocks whereas multi-factor solutions combine factors that exhibit low correlation to each other.
Garrett Glawe noted that in the past few years, equal weight, quality, momentum, and multifactor ETFs have attracted significant interest. 2024 was a record year for Invesco’s ETF business with total global ETF AUM reaching $750 billion by the end of November 2024. This success was driven in large part by strong flows in factor-based ETFs.
Get in touch with one of our ETF specialists today.
In volatile markets, consider a hold-to-maturity bond strategy that locks in a known yield-to-maturity. Another option, global high yield corporate bonds.
Investors can choose factors along the risk spectrum, such as quality and low volatility, two of the more defensive equity factors, when markets are volatile.
The US dollar has been under pressure, and we think it could go even lower because of macro uncertainty, rate cuts, and currency strength around the world.
Diversification does not guarantee a profit or eliminate the risk of loss.
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.
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.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. These comments should not be construed as recommendations, but as an illustration of broader themes.
Factor investing is an investment strategy in which securities are chosen based on attributes that have been associated with higher returns.
Factor investing may underperform cap-weighted benchmarks and increase portfolio risk.
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.
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.
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.
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