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Invesco Dynamic-Multifactor

Rotational strategy that seeks to anticipate changes in the business cycle and tilt toward factors expected to outperform in each market regime.

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Proprietary macro regime indicators

Forward-looking signals guide dynamic factor allocations given cyclical properties

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Systematic, transparent process

Rules-based investment process allows for transparency — no "black box" construction

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Cost-effective

Complementary to passive and active management, delivering an innovative and cost-effective solution in the marketplace

Why Invesco Dynamic-Multifactor?

Invesco Dynamic-Multifactor Strategies seek to outperform the corresponding FTSE/Russell market-cap-weighted benchmark on a total-return and risk-adjusted basis while maintaining a comparable level of risk over a full market cycle.

Fund Ticker Asset class Vehicle Download
Invesco International Developed Dynamic-Multifactor Index ETF IIMF
IIMF.F		 International and global equity ETF Fact sheet
Invesco Russell 1000®  Dynamic-Multifactor Index ETF IUMF
IUMF.F		 US equity ETF Fact sheet

Invesco Dynamic-Multifactor Strategies in Canada explained

Darim Abdullah, ETF Strategist, breaks down how Invesco's Dynamic-Multifactor approach works, how they're different from other factor-based strategies, and why investors should consider them for their portfolios. 

Transcript: Transcript

00:00:07:24

In Canada, we have two Dynamic-Multifactor ETFs. One provides exposure to the broader U.S. equity market and comes with the ticker IUMF,  and the other provides exposure to the broad developed international equity market and comes with the ticker IIMF.

00:00:23:24

Both ETFs are core diversified and broad-based strategies that employ a rules-based process to take advantage of their changing market environment.

00:00:33:29

First, leveraging Invesco's macro-regime Framework, the first step of the process involves identifying the current economic regime. Or more simply put - the stage of the business cycle.

00:00:45:08

These stages can be identified as: recovery, expansion, slowdown or contraction. Once the current economic regime is determined, each regime is mapped to historically rewarded factors or investment styles. The portfolio construction then involves dynamically adjusting the ETFs underlying holdings’ targeting those highly exposed to the factors or investment styles favored by the current economic regime.

00:01:10:21

Let's provide an example. During an economic recovery, the ETFs would be tilted towards holdings that are relatively undervalued and smaller in size, targeting the value and size factors which have historically done well during an economic recovery.

00:01:26:20

And during an economic slowdown, The ETFs would adjust their holdings and be tilted towards holdings that exhibit strong defensive attributes, such as low volatility and quality factors.

00:01:40:05

In essense, the ETF is dynamic and making changes to its underlying holdings to better fit the economic regime we’re in and how to navigate the market, uncertainty.

00:01:54:14

We believe that our Dynamic-Multifactor ETFs are uniquely differentiated from other factor-based strategies via two angles. First, there will be at least two targeted factor exposures and sometimes three at any given point in time. This multifactor approach differentiates our ETFs from other single factor based strategies out there.

00:02:16:00

So this begs the question “Why is it important to think about factors together rather than on a standalone basis”? We believe this is important because many of these factors tend to have low to negative correlation to one another, and by using multiple factors, we can reap the potential diversification benefits of bringing them together.

00:02:37:06

The second way over ETFs our differentiated is that within the multifactor framework, the strategy is truly dynamic and moving from one set of factors to another depending on the economic regime we are in.

00:02:49:17

So, this sets it apart from other multifactor strategies that tend to be more static in nature. The dynamic overlay, driven by Invesco's macro regime framework, has been a key driver for returns for the strategies since their inception.

00:03:08:19

We believe that Invesco Dynamic-Multifactor Strategies provide cost-effective alpha, targeting, broad U.S. and international equity exposures. Since the inception of the underlying indices that have delivered excess returns on top of broad-based market indices such as the S&P 500 and the MSCI EAFE.

00:03:28:00

This was coupled with downside risk mitigation as evident, and they down-capture ratios. The ability of the strategy to position itself into more defensive holdings exhibiting low volatility and high-quality factors when markets are expected to be challenged has provided an attractive down-capture ratio.

00:03:47:04

This was particularly helpful for the US equity strategy in 2022, considered by many as one of the most challenging year for investors in recent history.

00:03:57:09

The US equity strategy delivered an excess return of 4.87% on top of the broad based S&P 500 index. Investors may seek to benefit from such an active and cost-effective approach in light of the uncertain market backdrop we've been experiencing.

00:04:14:18

Whether you are an investor who wants to capitalize on an economic recovery or reduce your investment risk associated with economic downturns, Invesco’s Dynamic-Multifactor ETFs can potentially help you alleviate the need to tactically make changes to your investments by providing you with a streamlined approach to navigating the U.S.

00:04:34:17

and international equity markets, regardless of their direction.

 

Macro regime framework

Factors exhibit cyclicality and different exposures to economic risk. The framework will navigate market cycles, depending on each regime, for a tactical factor allocation approach.

This diagram shows the four distinct regime periods of recovery, expansion, slowdown, and contraction and which factor tilts correspond with each regime.

This graph demonstrates how the team defines the stages of the business cycle based on the expected level and change in economic growth and how we combine proprietary indicators to estimate one of four factor regimes: Recovery, expansion, slowdown, and contraction.

  Recovery Expansion Slowdown Contraction
Long-term economic growth trend Growth is below trend and accelerating Growth is above trend and accelerating Growth is above trend and decelerating Growth is below trend and decelerating 
Size x x    
Value x x    
Momentum   x   x
Low volatility     x x
Quality     x x

Factor cyclicality 

  • Size and value tend to be cyclical, with higher operating leverage and more resilience on external funding.
  • Quality and low volatility tend to be defensive, with lower operating leverage and more reliance on internal cash flows.
  • Momentum is more transient and tends to perform well in later stages of cyclical upturns and downturns.
     

Our philosophy 

  1. Factor portfolios1 can outperform market-cap benchmarks in the long term by rewarding investors for fundamental and behavioral sources of risks.
  2. Factor returns are cyclical, exhibit low correlation to one another, and have potentially large performance dispersion, driven by changing macro and market conditions.
  3. Dynamic factor allocations seek to achieve better results by anticipating changes in the business cycle.

Why Invesco for Multifactor Strategies?

Invesco Dynamic-Multifactor Strategies utilize the Invesco Solutions team’s proprietary research capabilities and is managed by our ETF and Indexed Strategies team, which oversees $470 billion across 400+ index-based solutions spanning asset classes, regions, sectors, and factors. Invesco Dynamic-Multifactor Strategies' rotational approach, proprietary indicators, style factors, and core exposure make it an appealing strategy.

Over a full market-cycle, Invesco Dynamic-Multifactor Strategies provide core exposure for its respective regions and market caps. Due to its rotational nature, Dynamic-Multifactor will often have tilts, resulting in the strategy not providing core exposure as of a single point in time. Our strategy has provided statistically significant exposure to each of the five factors over time, ensuring diversified, multi-factor exposure.

Invesco Dynamic-Multifactor Strategies use a rules-based framework to target exposure to five different factors. Invesco Funds use economic and market sentiment indicators to identify four regimes corresponding to different parts of the business cycle: recovery, expansion, slowdown, and contraction. Invesco's Dynamic-Multifactor Strategies emphasize exposure to these factors by allocating to one of four predetermined multifactor indexes, according to the Invesco economic regime signal. These multifactor indexes target a combination of factors that have historically outperformed other factors in these stages of the business cycle.

  • Relative to a single-factor approach, a multifactor strategy provides greater diversification, which can smooth investor returns and help avoid periods of prolonged single factor underperformance.

  • Relative to a static multifactor approach, a dynamic strategy allows investors to position more defensively when expected economic growth is expected to fall and, alternatively, position pro-cyclically when expected economic growth is expected to rise. Investors have the potential to achieve greater risk mitigation and greater return potential through a dynamic approach.

Footnotes

  • 1

    Based on the fundamental characteristics of size, value, momentum, low volatility, and quality. There is no guarantee that such goals will be realized or achieved or that an investment strategy will be successful. Investors should keep in mind that the securities markets are volatile and unpredictable. There are no guarantees that the historical performance of an investment, portfolio, or asset class will have a direct correlation with its future performance. Source: Invesco Investment Solutions.

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