Best year ever
Invesco: Best US Equity ETF Provider – Invesco Asset Management won Best US equity ETF provider for 2019, a year that was, Chris Mellor, Head of Equity and Commodity ETF Product Management, Invesco, says: ‘the best year ever’. The firm raised around USD11 billion in net new assets, pushing it up the rankings in Europe to number three.
“We are very happy with that,” Mellor says. “We punch significantly above our weight with a growing market share.”
The growth has come from a combination of factors, he says. Firstly, equity products, particularly the US equity suite had a very good year but, Mellor says, other areas were also firing well, such as gold and fixed income. The firm raised USD2 billion in fixed income core beta products last year, with the launch of a suite of Treasuries, gilts and Euro govies products.
“The growth came from a combination of factors which is what you need if you are going to have a strong year,” Mellor says. The US equity ETF suite had a stellar year driven by products like the S&P500 ETF that raised USD3.4 billion, half of the entire total for all S&P 500 ETFs last year in Europe.
“The key thing was that it had structural differences from other products,” Mellor says. Invesco’s S&P 500 ETF is based on a synthetic approach, a basket of equities with a swap overlay which has structural advantages in terms of performance.
“We improved the product in 2018 and it has taken time for the performance to come through and for clients to realise what they are looking at,” Mellor says. “The performance advantage is significant in that the ETF is tracking the gross return index which means it outperforms.”
Last year, the product outperformed by 52 basis points after fees, and the best physical replication returned 25 basis points.
“Investors are warming up to the concept of synthetics because there is a genuine advantage to be had,” Mellor says. “In investment theory, if you take a risk you expect a reward and you have to think that 27 basis points of extra performance is probably enough to offset the minimal risks involved.”
Invesco utilises a multi-counterparty swap model to reduce counterparty risks by diversifying how much exposure each receives and they reset the swaps if they go above a certain level to bring them back to parity.
The heavily volatile markets of early 2020 have seen inflows for Invesco. The S&P 500 product saw inflows of USD1.2 billion to mid-March. “Investors are switching out of other more expensive or less well performing products and they are also buying at bargain basement prices.”
Other sectors that performed well for Invesco over 2019 were other US indices, gold, FinTech, Blockchain and ESG.
“ESG has been a big theme in the last 12 months or so,” Mellor says. “It’s grown massively and enjoyed a good start with the suite of three MSCI ESG products designed as core holdings, tracking standard benchmarks but with significant and meaningful ESG exclusions and focus.”
Gold has also done well for them during market volatility with USD1.2 billion in net new assets in gold largely in the first few weeks of March.
Head of EMEA ETF Equity & Commodity Product Management, Invesco
Chris Mellor leads the EMEA ETF equity and commodity product management team at Invesco, responsible for providing support and analysis for the range of equity and commodity ETFs. Before joining Invesco he worked as an investment strategist, focusing on market timing and tactical allocation across regions, sectors and styles for Sunrise, State Street Global Markets, Credit Suisse and Societe Generale. Chris holds a Doctor of Philosophy in Inorganic Chemistry from Balliol College, Oxford. He is also a charterholder of the CFA Institute.