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Dynamic Multifactor

Discover our rotational strategy that seeks to anticipate changes in the business cycle and tilt toward factors expected to outperform in each market regime.

Investment approach

Dynamic Multifactor seeks to outperform the corresponding FTSE Russell market-cap-weighted benchmark on a total-return and risk-adjusted basis while maintaining a comparable level of risk over a full market cycle. It is complementary to passive and active management, delivering an innovative solution in the marketplace.

Macro regime framework

Factors exhibit cyclicality and different exposure to economic risk.

This diagram shows the four distinct regime periods of recovery, expansion, slowdown, and contraction and which factor tilts correspond with each regime.

This graph demonstrates how the team defines the stages of the business cycle based on the expected level and change in economic growth and how we combine proprietary indicators to estimate one of four factor regimes: Recovery, expansion, slowdown, and contraction.

  Recovery Expansion Slowdown Contraction
Long-term economic growth trend Growth is below trend and accelerating Growth is above trend and accelerating Growth is above trend and decelerating Growth is below trend and decelerating
Size X X    
Value X X    
Momentum   X   X
Low volatility     X X
Quality     X X

Factor cyclicality

  • Size and value tend to be cyclical, with higher operating leverage and more resilience on external funding.
  • Quality and low volatility tend to be defensive, with lower operating leverage and more reliance on internal cash flows.
  • Momentum is more transient and tends to perform well in later stages of cyclical upturns and downturns.

Our philosophy:
  1. Factor portfolios1 can outperform market-cap benchmarks in the long term by rewarding investors for fundamental and behavioral sources of risks.
  2. Factor returns are cyclical, exhibit low correlation to one another, and have potentially large performance dispersion, driven by changing macro and market conditions.
  3. Dynamic factor allocations seek to achieve better results by anticipating changes in the business cycle.

Why Invesco for Dynamic Multifactor?

Dynamic Multifactor utilizes the Invesco Solutions team’s proprietary research capabilities and is managed by our ETF and Indexed Strategies team, which oversees $500 billion across 400+ index-based solutions spanning asset classes, regions, sectors, and factors. Its rotational approach, proprietary indicators, style factors, and core exposure make it an appealing strategy.

  1. Relative to a single-factor approach, a multi-factor strategy provides greater diversification, which can smooth investor returns and help avoid periods of prolonged single-factor underperformance.

  2. Relative to a static multi-factor approach, a dynamic strategy allows investors to position more defensively when expected economic growth is expected to fall and, alternatively, position pro-cyclically when expected economic growth is expected to rise. Investors have the potential to achieve greater risk mitigation and greater return potential through a dynamic approach. 

We combine two proprietary indicators which assess the level and direction of economic growth on a monthly basis:

1. Leading Economic Indicator (LEI): is assessed for each major region globally and aims to measure whether the expected level of economic activity is above or below its long-term trend through an equally weighted basket of seven to 10 local indicators across five broad categories.

Chart 1

We use our leading economic indicator (LEI) to predict whether growth will be above or below its long-term trend in the medium term by combining several economic variables from the most cyclical and leading parts of the economy together with variables capturing financial and monetary conditions.

2. Global Risk Appetite Cycle Indicator (GRACI): seeks to capture whether global risk appetite is rising or falling by assessing relative risk-adjusted performance between riskier and safer asset classes (e.g., equities vs. government bonds) as measured by an equally weighted composite of approximately 80 global total return indexes. 

Chart 2

The graphic shown displays a barometer for rising and falling growth. We use our Global Risk Appetite Indicator (GRACI) as a measure of the market’s risk sentiment, which we believe is strongly correlated with changes in economic growth expectations.

The five industry-accepted and academically researched equity style factors, which both Invesco and FTSE Russell agree to, have delivered attractive risk-adjusted returns over time. The five common criteria that are necessary to ensure the selected factors have rigor are:

  • Pervasive: Works across markets, regions, and market caps.
  • Persistent: Works through time and various market environments.
  • Robust: Not dependent on a single variable or definition.
  • Intuitive: Economic rationale for why it works.
  • Investible: Returns can be achieved after costs.

Industry and academic research documents how the five selected factors (value, momentum, low volatility, quality, and size) for inclusion in the strategy have the potential to deliver excess returns in the long run, and fulfill key evaluation criteria such as pervasiveness, persistence, intuitiveness, robustness, and investability.

Source: Evidence of a long-term factor is from Swedroe’s “Your Complete Guide to Factor-Based Investing.”

Over a full market cycle, Dynamic Multifactor has provided core exposure for its respective regions and market caps. Due to its rotational nature, Dynamic Multifactor will often have tilts, resulting in the strategy not providing “core” exposure as of a single point in time. Our strategy has provided statistically significant exposure to each of the five factors over time, ensuring diversified, multi-factor exposure.

Additional resources


    Heightened market volatility and uncertainty warrants a more dynamic approach to equity

    Mo Haghbin, Head of Invesco Solutions, interviewed by Ted Seides on the Capital Allocator’s podcast discussing evolving investor preferences as relates to public equities.

  • White paper
    White paper

    A macro approach to navigating the business cycle

    A closer look at the drivers of asset prices and how to unlock their potential.

  • Case Study
    Case Study

    Institutional factor-based indexing

    See how we partner with institutional investors to develop custom Dynamic Multifactor solutions that use transparent, rules-based approaches.

  • Solutions

    Monthly tactical asset allocation

    A monthly asset allocation report updated based on our proprietary model.

  • asset allocation
    asset allocation

    Dynamic Asset Allocation

    Invesco Solutions aims to deliver alpha via a scalable, customizable, dynamic asset allocation process based on investor needs.


  • 1

    Source: Invesco Investment Solutions. Based on the fundamental characteristics of size, value, momentum, low volatility, and quality. There is no guarantee that such goals will be realized or achieved or that an investment strategy will be successful. Investors should keep in mind that the securities markets are volatile and unpredictable. There are no guarantees that the historical performance of an investment, portfolio, or asset class will have a direct correlation with its future performance.

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