Invesco Ltd. (NYSE: IVZ), one of the largest issuers of smart beta exchange traded funds, added to its roster of multi-factor fixed income offerings Thursday with the debuts of two funds.
The Invesco Multi-Factor Defensive Core Fixed Income ETF (CBOE: IMFD) and the Invesco Multi-Factor Income ETF (CBOE: IMFI) are the latest 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.
Each of the bond market segments represented in the new ETF has its own criteria for assessing quality and value traits, the factors emphasized by the new ETFs.
Earlier this year, Invesco introduced eight multi-factor bond ETFs that focus on favorable value and quality characteristics.
The quality score is calculated based on the bond’s maturity and credit rating. Each bond is scored based on the number of years remaining to maturity, with bonds having fewer years to maturity receiving higher scores. Each rating agency’s rating is converted into a numerical value and a bond’s credit factor score is calculated as an equally-weighted average of the numerical scores of each agency that has rated the bond. The Quality Score for each bond is computed as a weighted-average combination of these two factors, with weights of 75% and 25% for maturity and credit rating, respectively.