Smart Beta Research
While smart beta has become a buzz word, the concept is far from new. Institutional investors have used alternative weighting and factor-driven strategies since the 1970s, albeit not labeled "smart beta." Now that the term has become mainstream, Invesco would like to provide insight on where we see opportunities for investors.
Employing features of both worlds
Smart beta strategies seek to offer investors an alternative to the traditionally polarized passive and active portfolio construction options. They are not simply offshoots of active management or ETF replication vehicles. Through smart beta ETF strategies, we believe investors have the opportunity to retain broad market exposure, potentially achieve long-term outperformance when compared to an index, and reduce portfolio risk in a liquid, transparent, and low cost way. 1,2
A pioneer in smart beta ETF strategies
Invesco believes that smart beta strategies offer exposure to the best of both worlds, providing investors a valuable alternative that expands portfolio construction opportunities. We were founded on the belief that all investors should be provided with a smarter way to access the markets — beyond traditional active and passive strategies. Invesco introduced many of the first smart beta vehicles available today calling them "Intelligent ETFs." 3
There is no assurance that an investment strategy will outperform or achieve its investment objectives
1 Liquidity: Shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 50,000, 75,000, 80,000, 100,000, 150,000 or 200,000 shares.
Transparency: ETFs disclose their holdings daily.
Low Cost: Since ordinary brokerage commissions apply for each buy and sell transaction, frequent activity may increase the cost of ETFs.
2 Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.
3 When we say that our ETFs are intelligent, we mean that in several different ways. Please see "Important Information" below for a more detailed explanation.
Smart beta ETF strategies
As a pioneer in smart beta ETF strategies, Invesco markets a number of time-tested options suitable for various market conditions and investor profiles.
Indicates an industry first from Invesco
Single-factor strategies are designed to address a single factor such as those listed below. We currently offer over 20 single-factor strategies:
PBP S&P 500 BuyWrite ETF
Alternatively weighted fixed income
DBV DB G10 Currency Harvest
PYZ DWA Basic Materials Momentum
PEZ DWA Consumer Cyclicals Momentum
PSL DWA Consumer Staples Momentum
PIZ DWA Developed Markets Momentum
PIE DWA Emerging Markets Momentum
PXI DWA Energy Momentum
PFI DWA Financial Momentum
PTH DWA Healthcare Momentum
PRN DWA Industrials Momentum
PDP DWA Momentum
DWAS DWA SmallCap Momentum
PUI DWA Utilities Momentum
SPMO S&P 500 Momentum ETF
Multi-factor strategies are designed to address multiple factors, including those listed below. We currently offer over 20 multi-factor strategies.
Low beta equal weight
Fundamentals weighted broad market equity
Equal weight equity
Alternatively weighted fixed income
Quantitative sector and industry
PBE Dynamic Biotechnology & Genome
PKB Dynamic Building & Construction
PXE Dynamic Energy Exploration & Production
PBJ Dynamic Food & Beverage
PEJ Dynamic Leisure and Entertainment
PBS Dynamic Media
PXQ Dynamic Networking
PXJ Dynamic Oil & Gas Services
PJP Dynamic Pharmaceuticals
PSI Dynamic Semiconductors
PSJ Dynamic Software
Intelligent commodities strategies
Intelligent commodities strategies are designed to address the impact rolling futures can have on commodity returns, an issue ignored by traditional commodity strategies. We currently market eight intelligent commodities strategies.
Glossary & terms
Beta: is a measure of risk representing how a security is expected to respond to general market movements. For example, a beta of one means that the security is expected to move with the market. A beta of less than one means the security is expected to be less volatile than the overall market. Betas greater than one are expected to exhibit more volatility or movement than the general market.
Factor driven: A method of using objective style determinates, such as book value, cash flow, sales and dividends, within an index in attempt to achieve mutually exclusive security selection.
Front month roll: is a process in which an index automatically rolls to the next available futures contract with a predetermined expiration month (e.g. the next-to-expire contract).
Liquidity: Liquidity is characterized by a high level of trading activity and is a measure of the degree to which an asset or stock can be bought or sold in the market without affecting its asset price. Assets or stocks that can be easily bought or sold are known as liquid assets.
Low cost: Since ordinary brokerage commissions apply for each buy and sell transaction, frequent activity may increase the cost of ETFs.
Market-cap-weighted: A type of index in which individual components are weighted according to market capitalization. Index value can be calculated by adding the market capitalizations of each index component and dividing that sum by the number of securities in the index.
Optimum Yield™: A roll methodology that is specially designed for investors to gain access to the commodities market the way many institutions or commodity professionals would , rather than employing a front month roll methodology.
Smart beta: An alternative and selection index based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both.
Transparency: ETFs disclose their holdings daily.
When we say that our ETFs are intelligent, we mean that in several different ways:
One of our largest family of ETFs is based on Intellidexes™ — dynamic indexes that use rules-based quantitative analysis to choose stocks for their capital appreciation potential. We believe this is an intelligent way for an index to select stocks.
Our ETFs based on FTSE RAFI® indexes weight stocks according to fundamental economic factors. We believe this is a more intelligent weighting method than market-cap weighting. Furthermore, our Fundamental Index ETFs are based on four factors — sales, cash flow, book value and dividends — which we believe is a more balanced, intelligent approach than weighting stocks according to just one fundamental measure.
We also have a wide range of ETFs that target narrow slices of the market (Intelligent Access) — from niche industries to specific world regions.
For investors who are interested in these niches, we believe ETFs — which invest in multiple companies within a market sector — may offer a more intelligent investment approach than stock picking.
Our Invesco DB commodity funds (Intelligent Access) provide systematic access to some of the world's most important commodities by seeking to replicate rules-based indexes composed of futures contracts that trade on some of the most liquid and deep commodity markets in the world.
Overall, no matter what the focus, all ETFs offer investors tax efficiency and trading flexibility, which make them an intelligent investment tool for investors to consider. Whether you're looking for broad market exposure, specialized investment strategies or access to niche markets, we believe our ETFs represent an intelligent option for your portfolio.
General Risk Information
Investments focused in a particular industry are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
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.
Important Information about Invesco DB Funds
Commodities and futures generally are volatile and are not suitable for all investors.
The Invesco DB funds are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing. To download a copy of each Invesco DB prospectus please visit DBA, DBB, DBC, DBE, DGL, DBO, DBP and DBS.
The Shares of the Funds are not deposits, interests in or obligations of any Deutsche Bank, AG, Deutsche Bank, AG London, Deutsche Bank Securities, Inc. or any of their respective subsidiaries or affiliates or any other bank (collectively, the "DB Parties") and are not guaranteed by the DB Parties.
The indices underlying DBA, DBB, DBC, DBE, DGL, DBO, DBP and DBS are products of Deutsche Bank AG and/or its affiliates. Information regarding the indices is reprinted with permission. Deutsche Bank®, DB™ and Optimum Yield™ are trademarks of Deutsche Bank AG. The indices and trademarks have been licensed for use for certain purposes by Invesco Capital Management LLC, an affiliate of Invesco Distributors, Inc. The above-referenced funds are not sponsored, endorsed, sold or promoted by the DB Parties or their third party licensors and none of such parties makes any representation, express or implied, regarding the advisability of investing in the funds, nor do such parties have any liability for errors, omissions, or interruptions in the indices. The indices are calculated and administered by the DB Parties without regards to the funds.
Invesco Capital Management LLC and Invesco Distributors, Inc. are not affiliated with Deutsche Bank Securities Inc.
Trademarks & other information
The Intellidex™ Indexes are trademarks of NYSE Euronext or its affiliates and are licensed for use by Invesco Capital Management LLC in connection with the Invesco Intellidex investment products. The products are not sponsored or endorsed by NYSE Arca, and NYSE Arca makes no warranty or representation as to the accuracy and/or completeness of the Indexes or results to be obtained by any person from use of the Indexes or the trading of the products.