Institutional indexing

Vincent de Martel: Hello, my name is Vincent de Martel, and I'm Head of Client Solutions for North America. I'm very excited to be given an opportunity to present our indexing capabilities. I wanted to take a few moments to share with you some key facts about index management at Invesco, and most importantly, what it would be like for you to work with us. Let me start with a quick introduction to our business. Our history really started with ETFs 20 years ago when we started managing the industry's first smart beta indexes. We now have 150 people dedicated to index management, and we manage close to $350 billion across equities, fixed income, and alternative asset classes.

Let me start with analytics, as this is the starting point of our client-centric approach. Any index conversations start with investors' needs and outcomes. We have security-level analytics on over 12,000 indexes to have an informed dialogue with you about investing. We know your organization has unique investment challenges and bespoke investment needs. We can manage custom index strategies, and implement them in a choice of funds and accounts. We have a lot of demand right now for indexing strategies seeking to achieve specific social or environmental goals.

Finally, it's about access to investment experts. Our institutional indexing clients have access to our traders, our portfolio managers, and our researchers across the whole of Invesco. We treat our index clients just like we would treat our active clients. What matters to us is the strength of the relationship and being helpful to our clients. To learn more about our institutional indexing capabilities, please reach out to your Invesco representative. My colleagues and I very much look forward to working with you.

Invesco takes an active approach to its passive investments, ensuring our clients have a solid understanding of their benchmark properties, behavior, and drivers of return. In a recent client engagement, we provided a deeper look into two well-known US equity indexes, the Russell 3000 and the S&P 500. While both share a market-cap-weighting methodology and similar long-term performance, differences exist, making the case that investors can benefit from evaluating their index exposure.

Now let's dive into the top similarities and differences between the two indexes. Historically, the performance of both indexes is barely distinguishable. The mid and small-cap securities in the Russell 3000 do not explain much of the index's performance, despite its being an all-cap index. Although both indexes rely on a market-cap-weighting approach, the S&P 500 deploys a subjective committee for security inclusion, whereas the Russell 3000 utilizes a more objective rules-based methodology.

Despite the inclusion of both small and mid caps in the Russell 3000, both indexes have a similar market-cap composition, which is large cap, given the weighting methodology. For investors who value the importance of small-cap securities as a driver of return or diversification, a dedicated small cap mandate may be additive.

Relative to the Russell 3000, the S&P 500 is more concentrated, given its lower number of index constituents. While both the Russell 3000 and the S&P 500 have a comparable index construction methodology and share similarities across the risk and return spectrum, the weighting mechanisms of stocks included in each index may position clients to be overly exposed to large-cap companies. Investors who are looking to diversify their market exposure should seek a more balanced mix of large, mid, and small-cap companies through other index exposures.

Our team can support your organization's efforts to find diversifying, return-enhancing, or risk-reducing strategies to complement your existing passive US large-cap exposure. For more information, please visit invesco.com/institutional-indexing, or speak with your Invesco representative.

Paisley Nardini: Hi, I'm Paisley Nardini, Strategist for the client solutions team here at Invesco. In this role, I support both our clients and consultants on all index-related inquiries. In this new era of indexation, we've come to discover that it is no longer a one-size-fits all market. Client portfolios are seeking enhanced ways to achieve their stated objectives, whether it be return enhancement, diversification, or risk reduction. Index exposure can play an active role in all of these objectives.

A theme which is garnering increased focus within indexing is ESG. Many of the ESG discussions we are having can be attributed to our clients not resonating with what is available to them off the shelf. Due to Invesco's scale, ESG-dedicated resources, as well as the ability to develop custom indexes, we can offer solutions to help resolve these outstanding concerns.

I'd like to share some highlights of a recent engagement where Invesco delivered on a client's objective of being able to offer a custom suite of ESG-focused portfolios. These portfolios showcase the unique beliefs and values of our client, something that they were not able to find in the marketplace today. The client is a union-owned bank in the US, who partnered with Invesco to create and implement four indexes spanning [core] ESG as well as several satellite strategies more narrowly focused on environmental and social issues. The solutions team at Invesco partnered with our resident ESG experts to help define the client's desired exposures, while also taking into consideration constraints. What this meant for the client was high-touch service and high level of customization, so that their unique beliefs are being addressed.

One of the more nuanced strategies that was created in this process was a portfolio benchmarked to the Invesco Global Climate Alignment Index. This index provides access to leaders in carbon disclosure and reporting, alongside those companies innovating within the carbon solution space. The creation of this index relied on ESG data inputs from leading providers and incorporated the client's desired constraints. We worked hand in hand with our client in every step of the creation process, ensuring that Invesco is doing the heavy lifting to develop, create, iterate, and implement to the client's desired outcome.

Our mission on the solutions team at Invesco is to help bring our client's investment ideas to life. We would welcome the opportunity to help your organization achieve more efficient, higher level of customization and a deeper level of engagement as it relates to index mandates. Thank you.