New Listing

Invesco launches two active multi-factor corporate bond ESG ETFs

Securities will be selected on three factors; value, low volatility and carry

Theo Andrew

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The Invesco EUR Corporate Bond ESG Multi-Factor UCITS ETF (ECMA) and the Invesco EUR Corporate Bond ESG Short Duration Multi-Factor UCITS ETF (ECMS) are listed on Deutsche Boerse and Borsa Italiana with total expense ratios (TERs) of 0.19% and 0.15%, respectively.

Both ETFs will invest in euro-denominated unsecured corporate bonds from global issuers with an investment-grade credit rating. The short-duration ETF will invest in bonds with a maximum maturity of five years.

Invesco will leverage its quantitative strategies team to run the strategy.

The issuer said up to 30% of the portfolios may be invested in unsecured corporate bonds denominated in other currencies, which can be hedged back into euros “at the investment manager’s discretion”.

Invesco said the two durations allow investors to either invest across the full maturity curve if they believe yields are close to peaking or short if they are concerned interest rates will rise further.

It added the ETFs will take a “best in class” approach to ESG, selecting the security from each industry that scores highest in Invesco’s scoring system.

The remaining securities will be selected based on three major factors, value, low volatility and carry, with each factor designed to contribute an equal risk to the portfolio.

Gary Buxton, head of EMEA ETFs and indexed strategies at Invesco, said; “In most ETFs, you will find in the market are passive, but we recognise an active or quantitative approach may deliver a potentially better outcome in certain situations.

“By ‘better’ I mean more aligned with the investor’s objectives and risk-return expectations. That is why we adopt an unbiased approach to product development, with decisions ultimately driven by investor demand and market dynamics.”

Erhard Radatz, senior portfolio manager at Invesco, added the ESG principles in the ETFs will not sacrifice yield compare to a non-ESG benchmark.

“You could address the yield shortfall by overweighting issuers with lower credit ratings, but that may not be in investors’ best interest.

“Instead, we use a factors-based approach to re-establish characteristics such as duration and credit risks so that the ESG portfolio is more aligned with the standard benchmark,” he said. 

It is the second and third ETF launched by Invesco this month after it unveiled the Invesco MSCI Emerging Market ESG Climate Paris Aligned UCITS ETF (PAEM).

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