Investing with the fear factor

Title

Investing with the fear factor

Description

Tariff, trade war, and market volatility headlines can make investors fearful. It's unsettling, but fear can also create opportunities.

Emotions are running high around the tariff and trade war headlines that seem to shift daily. Fear is showing up in higher volatility and especially higher implied volatility, the price that the market charges to hedge against perceived market risk over a certain number of days into the future. The VIX, the CBOE Volatility Index, is often called the market’s fear gauge. It also shows how fear-based thinking doesn’t generate efficient outcomes. Historically implied volatility, or fear of what may happen, has over time traded meaningfully above realized volatility, or the actual course of market events. In other words, fearful participants in the market, almost always overestimate either the likelihood, or the magnitude, or both, of the events they fear.

In my view, fear can create market opportunities. Looking back to the 2018 tariffs and thereafter, one could make the argument that they were more anti-growth than pro inflation. If, the tariffs, stock market pullback, and falling consumer confidence are more effective in slowing growth than promoting inflation, it could pave the way for a more dovish Federal Reserve and a softer landing than the market currently expects. Plus, if current trade policy results in more onshoring and domestic capital investment in high- value industries over the next few years, ¬in combination with lower interest rates, it could set the stage for better housing affordability, increased consumer spending , and growth in high quality jobs. And this could provide a healthy foundation for stocks, investment-grade, and high yield credit.

In this current environment, consider IROC, Invesco Rochester High Yield Municipal ETF to take advantage of attractive income opportunities in the muni space. For investors looking for low duration and investment grade credit risk, consider ICLO, the Invesco AAA CLO Floating Rate Note ETF, which offers a relatively attractive yield with a near zero duration.

Learn more about IROC and ICLO and get additional insights in the featured products and resources section below this video.

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Important Information

Not a Deposit    Not FDIC Insured    Not Guaranteed by the Bank    May Lose Value    Not Insured by any Federal Government Agency

The CBOE Volatility Index (VIX) is a real-time market index representing the market's expectations for volatility over the coming 30 days. It is derived from the price inputs of S&P 500 index options and is often referred to as the "fear gauge" of the market, as it reflects investor sentiment and market risk.

Effective February 24, 2025, The Fund will invest at least 75% of its total assets in low-to medium-quality municipal securities. The Fund’s name will change to “Invesco Rochester High Yield Municipal ETF.” As a result of this change, the Fund will also change its ticker to “IROC.”

Past performance is not a guarantee of future results. An investment cannot be made into an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The opinions expressed are those of Invesco, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

There are risks involved with investing in ETFs, including possible loss of money. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.

The investment techniques and risk analysis used by the portfolio managers may not produce the desired results.

Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

The Fund’s income may decline when interest rates fall if it holds a significant portion of short duration securities and/or securities with floating or variable interest rates. If the Fund invests in lower yielding bonds, as the bond’s portfolio mature; the Fund will need to purchase additional bonds, thereby reducing its income.

The Fund may engage in active and frequent trading of its portfolio securities to reflect the rebalancing of the Index.

The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.

ICLO

Risks of collateralized loan obligations include the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the collateralized loan obligations may be subordinate to other classes, values may be volatile, and disputes with the issuer may produce unexpected investment results.

Variable- and floating-rate securities may be subject to liquidity risk, there may be limitations on the Fund's ability to sell securities. Due to the features of these securities, there can be no guarantee they will pay a certain level of a dividend and such securities will pay lower levels of income in falling interest rate environment.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The Fund may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities.

IROC

Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.

The Fund may invest in municipal securities issued by entities having similar characteristics, which may make the Fund more susceptible to fluctuation.

The Fund invests in obligations, exempt from regular federal individual income taxes, of the governments of U.S. territories, commonwealths and possessions such as Puerto Rico, the U.S. Virgin Islands, Guam and the Northern Mariana Islands. As result, the Fund may be adversely affected by local political, economic, social and environmental conditions and developments, including natural disasters affecting such obligations. Certain municipalities the Fund invests in, such as Puerto Rico, have significant financial difficulties, including risk of default, insolvency or bankruptcy; and may be subject to credit rating downgrades affecting the payment of principal and interest, the market values and marketability of such municipal obligations.

Securities which are in the medium- and lower-grade categories generally offer higher yields than are offered by higher-grade securities of similar maturity, but they also generally involve more volatility and greater risks, such as greater credit, market, liquidity, management, and regulatory risks.

Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.

A portion of the Fund’s otherwise tax-exempt income may be subject to the federal alternative minimum tax.

Based on a Master Settlement Agreement (“MSA”) with 46 states and six other US jurisdictions, large US tobacco manufacturers have agreed to make annual payments to government entities in exchange for the release of all litigation claims. Several states have sold bonds backed by those future payments, including (i) bonds that make payments only from a state’s interest in the MSA and (ii) bonds that make payments from both the MSA revenue and from an “appropriation pledge” by the state which requires the state to pass a specific periodic appropriation to make the payments and is generally not an unconditional guarantee of payment by a state. Settlement payments are based on factors, including, but not limited to, annual domestic cigarette shipments, cigarette consumption, inflation and the financial capability of participating tobacco companies. Payments could be reduced if consumption decreases, if market share is lost to non-MSA manufacturers, or if there is a negative outcome in litigation regarding the MSA, including challenges by participating tobacco manufacturers regarding the amount of annual payments owed under the MSA.

The Fund is non-diversified and may experience greater volatility than a more diversified investment.

Shares are not individually redeemable, and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 75,000, 80,000, 100,000, or 150,000 Shares.

Invesco Distributors, Inc.              3/25                  NA 4335612