Invesco ETF Launches Active EM ETF, Betting on a Three-Factor Recipe for Outperformance

In a move that underscores the growing sophistication of the exchange-traded fund universe, Invesco ETF has listed a new actively managed Emerging Markets equity ETF on the London Stock Exchange.

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By ETFWorld.co.uk

Matt Tagliani, Head of EMEA ETF Product at Invesco

The Invesco Emerging Markets Enhanced Equity UCITS ETF Acc aims to deliver long-term returns that outpace the widely-followed MSCI Emerging Markets Index, but with a crucial twist: it will not be shackled to it.

For decades, investors seeking exposure to the growth dynamism of emerging markets have typically turned to passive, index-tracking funds. This new offering from Invesco, however, represents a clear pivot towards active management within the ETF wrapper, promising a more nuanced and potentially rewarding approach to navigating these complex markets.

The Engine Under the Bonnet: A Systematic, Three-Factor Approach

So, how does it plan to beat the market? The fund’s strategy is built not on star stock-pickers, but on a disciplined, systematic quantitative process. The investment team employs a proprietary model that scours a universe of liquid large and mid-cap EM stocks, assessing them based on three powerful investment factors: Value, Quality, and Momentum.

The process is rigorously structured. Companies are compared within their respective industry groups and regions to ensure a like-for-like assessment. A Brazilian miner is evaluated against its peers, not a Taiwanese tech giant. The final portfolio is the result of a monthly optimisation process that seeks the optimal trade-off between maximising exposure to these three factors, managing overall risk, and minimising transaction costs.

Active Management in an ETF Wrapper: The Core Distinction

Prospective investors must understand a key distinction.

The fund holds an “actively managed portfolio of securities with the aim of delivering superior risk-adjusted returns.” While the MSCI Emerging Markets Index will be used as a performance comparator, the portfolio managers have the full flexibility to deviate from it significantly. They are not benchmark huggers.

A Compelling Proposition for the Discerning Investor

This ETF enters a crowded marketplace, but it carves out a distinct niche. For investors who believe in the long-term growth story of emerging markets but are wary of the volatility and inefficiencies of passive index investing, this fund presents a compelling proposition.

The monthly rebalancing and systematic factor approach are designed to adapt to changing market conditions, potentially offering a smoother ride and a better outcome than the broad index. The “Acc” (Accumulating) share class means that any income is automatically reinvested, making it a simple, set-and-forget vehicle for building long-term wealth.

The Bottom Line: The Invesco Emerging Markets Enhanced Equity UCITS ETF Acc is a sophisticated tool for the modern investor’s toolkit. It leverages the low-cost, transparent, and accessible structure of an ETF to deliver a rigorous, active strategy. While its success hinges entirely on the efficacy of Invesco’s quantitative model, it represents a significant step in the evolution of ETFs from simple index trackers to powerful, active investment solutions.

Source: ETFWorld.co.uk