ETF Trends spoke with Jason Stoneberg, Director of ETF Research and Product Development for Invesco, about factor-based ETF strategies at the 2020 Inside ETFs conference in Hollywood, Florida.
Stoneberg discussed the investment shift emerging from increased inflow to factor-based strategies. Traditionally, inflows into factor strategies may have amounted to 15% of assets into equity ETF, but in 2019 about half of the inflows into equity ETFs went towards factor ETFs, which Stoneberg believes speaks to broader adoption of factor investing.
As far as why, Stoneberg believes that the maturity of factor ETFs, many of which now have long track records, provides advisors a better understanding of the way factors perform in different market conditions. In 2019, inflows show investor interest in factors that offer defensive positioning, including low volatility, quality, and high dividend ETFs. This runs counter to the strong performance of the equity market and a number of factors strategies had average performance. The differentiation of many factor strategies will become apparent if the market shifts. This, in turn, would increase factor strategy adoption.
The Invesco S&P 500 Low Volatility Index (SPLV), an Invesco flagship factor product, saw a large increase in inflows, “As a bulk of investor interest is going to a lot more defensive-oriented strategies,” Stoneberg reiterated.
Although the equity market in 2019 remained strong, SPLV, the Invesco S&P 500 Small Cap Low Volatility ETF (XSLV) and the Invesco S&P 500 Mid Cap Low Volatility ETF (XMLV) outperformed. Invesco has also noticed that the low volatility factor has broadened out of into other areas of the market where investors also want to see more defensive positioning in place.
Stoneberg also notes that the personalization of factor-based strategies – the ability to customize ones’ own factor allocation to achieve the outcome that an individual investor prefers – is a large part of the appeal.
“Generally speaking, having positive tilts towards rewarded factors, and then being well-diversified across many factors can serve as a good core starting point,” Stoneberg adds.
For more information on Invesco’s Factor Investing strategies and thought leadership, visit https://emea.invesco.com/en/change/factor/.