Fixed Income Factor Funds Continue to See Growth

Factor investing, in and of itself, is still trying to gain its footing among the masses and according to the latest Global Factor Investing Study by Invesco, the trend is heading towards the positive. Additionally, there’s also good news for fixed income as factor funds are starting to see more growth among investors.

While the recurring argument in the capital markets are whether value or growth is in pole position, Invesco’s study is seeing more interest for all factors. Capital allocations are spreading across a variety of factors as well as multi-factor strategies.

“What struck me this year really is the increase in proportion of factor investors who are really ready to adopt factor investing in the fixed income space” now. There had been some interest among factor investors in fixed income “for a few years … but this year we have over three-quarters of wealth managers who view the approach of factor investing now being applicable to fixed income,” Invesco senior solutions strategist Vincent de Martel told ThinkAdvisor.

Per the ThinkAdvisor article, Invesco found that close to “half (45%) of the investors surveyed globally increased factor allocations in the past year, while 65% of North American investors planned to increase their factor allocations over the next three years, according to Invesco.”

Also, Invesco’s study found that “more than 66% of respondents also reported that their factor investing performance met or surpassed expectations for the performance of their traditional active or market-weighted allocations, Invesco pointed out. Investors are also maintaining their conviction in factor investing, with 77% of North American respondents waiting at least three years before judging performance, it said.”

Investors looking to gain broad-based exposure to bonds can look at funds like the ProShares S&P 500 Bond ETF (NYSEArca: SPXB). The fund seeks investment results that track the performance of the S&P 500®/MarketAxess Investment Grade Corporate Bond Index, which consists exclusively of investment grade bonds issued by companies in the S&P 500.

However, investors can also get the smart beta strategies via fixed-income ETFs. The Invesco Multi-Factor Defensive Core Fixed Income ETF (CBOE: IMFD) and the Invesco Multi-Factor Income ETF (CBOE: IMFI) are recent additions to the issuer’s lineup of multi-factor bond ETFs. Both new ETFs track in-house indexes.

IMFI follows the Invesco Multi-Factor Income Index. That benchmark “is designed to provide multi-factor exposure to fixed income securities in the following weights: 25% in mortgage-backed securities, 25% higher-quality US investment grade, 25% high yield, and 25% emerging markets debt,” according to Invesco.

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