Discover our rotational strategy that seeks to anticipate changes in the business cycle and tilt toward factors expected to outperform in each market regime.
Forward-looking signals guide dynamic factor allocations given cyclical properties
Rules-based investment process allows for transparency — no "black box" construction
Leverage FTSE Russell's leading index capabilities: Factor research, security weighting, and index governance
Dynamic Multifactor seeks 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. It is complementary to passive and active management, delivering an innovative solution in the marketplace.
Factors exhibit cyclicality and different exposure to economic risk.
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
Dynamic Multifactor utilizes the Invesco Solutions team’s proprietary research capabilities and is managed by our ETF and Indexed Strategies team, which oversees $500 billion across 400+ index-based solutions spanning asset classes, regions, sectors, and factors. Its rotational approach, proprietary indicators, style factors, and core exposure make it an appealing strategy.
We combine two proprietary indicators which assess the level and direction of economic growth on a monthly basis:
1. Leading Economic Indicator (LEI): is assessed for each major region globally and aims to measure whether the expected level of economic activity is above or below its long-term trend through an equally weighted basket of seven to 10 local indicators across five broad categories.
We use our leading economic indicator (LEI) to predict whether growth will be above or below its long-term trend in the medium term by combining several economic variables from the most cyclical and leading parts of the economy together with variables capturing financial and monetary conditions.
2. Global Risk Appetite Cycle Indicator (GRACI): seeks to capture whether global risk appetite is rising or falling by assessing relative risk-adjusted performance between riskier and safer asset classes (e.g., equities vs. government bonds) as measured by an equally weighted composite of approximately 80 global total return indexes.
The graphic shown displays a barometer for rising and falling growth. We use our Global Risk Appetite Indicator (GRACI) as a measure of the market’s risk sentiment, which we believe is strongly correlated with changes in economic growth expectations.
The five industry-accepted and academically researched equity style factors, which both Invesco and FTSE Russell agree to, have delivered attractive risk-adjusted returns over time. The five common criteria that are necessary to ensure the selected factors have rigor are:
Industry and academic research documents how the five selected factors (value, momentum, low volatility, quality, and size) for inclusion in the strategy have the potential to deliver excess returns in the long run, and fulfill key evaluation criteria such as pervasiveness, persistence, intuitiveness, robustness, and investability.
Source: Evidence of a long-term factor is from Swedroe’s “Your Complete Guide to Factor-Based Investing.”
Over a full market cycle, Dynamic Multifactor has provided 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.
Heightened market volatility and uncertainty warrants a more dynamic approach to equity
Mo Haghbin, Head of Invesco Solutions, interviewed by Ted Seides on the Capital Allocator’s podcast discussing evolving investor preferences as relates to public equities.
A macro approach to navigating the business cycle
A closer look at the drivers of asset prices and how to unlock their potential.
Institutional factor-based indexing
See how we partner with institutional investors to develop custom Dynamic Multifactor solutions that use transparent, rules-based approaches.
Monthly tactical asset allocation
A monthly asset allocation report updated based on our proprietary model.
Dynamic Asset Allocation
Invesco Solutions aims to deliver alpha via a scalable, customizable, dynamic asset allocation process based on investor needs.
Source: Invesco Investment Solutions. 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.
When you’re ready for a partner, not just a provider, we can connect you with a team focused on your investment challenges and opportunities.
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