A New Approach to Fundamental Weighting From Invesco
These new funds aim to deliver value exposure without the value traps.
In September 2018, Invesco launched a suite of five "Strategic" exchange-traded funds. These new funds track benchmarks that were developed by Invesco's internal index group, which was formed in 2017. The new lineup builds on the company's legacy as a pioneer in offering non-market-cap-weighted approaches to building index portfolios. Here, I'll take a closer look at the methodology behind these new indexes and compare them to their closest cousins within the Invesco stable.
A Brief History Lesson
Invesco, by way of its 2006 acquisition of the ETF sponsor formerly known as PowerShares, was among the first ETF providers to offer funds tracking indexes that weight their stocks based on something other than market capitalization. Guggenheim, whose ETF business Invesco acquired in 2018, was the first. It was actually Rydex, which was subsequently acquired by Guggenheim, that launched what is now Invesco S&P 500 Equal Weight ETF (RSP), in April 2003--the first non-market-cap-weighted ETF. About a week later, PowerShares debuted the fund now known as Invesco Dynamic Market ETF (PWC). The fund was underpinned by a member of the Intellidex index family. These indexes were created by the American Stock Exchange, which has since been acquired by the New York Stock Exchange. These funds were the first in a wave of second-generation strategic-beta benchmarks. These indexes are fundamentally different from the first generation of strategic-beta indexes in that they select and weight securities based on something other than price. Most do so in an effort to deliver better risk-adjusted returns than their parent index. As such, they represent a form of active management.
Ben Johnson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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