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Invesco launched two new actively managed ETFs in Europe offering exposure to Euro-denominated corporate bonds that meet ESG criteria and were selected using a multi-factor approach.
The Invesco EUR Corporate Bond ESG Multi-Factor UCITS ETF (Acc: ECMA GY; Distribution : ECMF GY) covers bonds of all maturities, while Invesco EUR Corporate Bond ESG Short Duration Multi-Factor UCITS ETF (Acc: ECMS GY) targets bonds at the beginning of the yield curve.
ECMA and ECMS are listed on Deutsche Borse Xetra in euros with fee rates of 0.19% and 0.15%, respectively.
ECMA, the broad-dated ETF, is compared to the Bloomberg Euro Corporate Bond Index which consists of Euro denominated fixed rate corporate bonds from global issuers with investment grade credit ratings. Eligible issues must have a nominal outstanding amount of at least €300 million.
ECMS, the short-dated ETF, is compared to Bloomberg Euro Corporate Bond Index 1-5 years which has the same eligibility conditions but consists only of bonds with residual maturities between one and five years.
Each ETF may invest up to 30% of its assets in unsecured corporate bonds denominated in currencies other than the euro, with currency risk hedged into euros at Invesco’s discretion.
Securities are selected for each ETF based on their compliance with ESG criteria as well as their attractiveness according to Invesco’s quantitative investment model.
Violators of international standards as well as companies involved in nuclear energy, coal, oil and gas, controversial weapons, military weapons, civilian firearms, tobacco, stem cell research and genetic engineering will not be eligible for selection.
Due to socially responsible selection, each ETF is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
Using proprietary models developed by the Invesco Quantitative Strategies (IQS) team, each ETF then creates three individual factor portfolios with bonds that have been selected and weighted to favor issuers with higher value exposure, low volatility and factor risk premia. These three factor portfolios are then combined to create a multi-factor portfolio with an equal risk contribution for each individual factor.
Invesco then benchmarks each multi-factor portfolio against its original universe, limiting country weight differentials to 8%, sector weights to 5%, issuer weights to 3% and weighted average duration to 0.2 years.
Paul Syms, Head of EMEA Fixed Income ETF Product Management at Invesco: “Fixed income securities have become much more attractive this year. European credit yields are at the highest levels we have seen in a decade due to a combination of higher interest rate expectations and wider spreads over government bonds. Fixed income investors have more to consider today than in recent years, especially if they have sustainability goals as well as financial goals. Our new ETFs allow investors to position their portfolio according to their own economic views, either investing across the full maturity curve if they believe yields are close to peaking, or focusing on a short maturity if they are concerned that interest rates will rise more than what is currently assessed. on the market.
Erhard Radatz, Senior Portfolio Manager, Invesco Quantitative Strategies: “Introducing ESG principles into a corporate bond portfolio typically means sacrificing yield relative to a standard non-ESG benchmark. This is partly due to the exclusion of traditionally high yield segments and because issuers that reduce their ESG risks tend to be of higher quality and therefore offer lower yields. You could make up for the shortfall by overweighting issuers with lower credit ratings, but that might not be in investors’ best interest. Instead, we use a factor-based approach to reset characteristics such as duration and credit risks so that the ESG portfolio is more aligned with the standard benchmark.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco: “Most ETFs you’ll find in the market are passive, but we recognize that an active or quantitative approach can yield a potentially better outcome in some situations. By “better” I mean more aligned with the investor’s goals and expectations for return and risk. That’s why we take an unbiased approach to product development with decisions ultimately guided by investor demand and market dynamics. Where appropriate, we can leverage the expertise of Invesco’s global resources, such as our IQS team’s 30+ years of experience integrating factor investing and ESG into client portfolios.