Innovation in fixed income and ESG attracts investors
Invesco | Best ESG ETF Issuer ($100m+) | Best European Fixed Income ETF Issuer ($100m-$1bn) - Innovative product launches based on client demand lie behind the win of these two awards for Invesco, say Chris Mellor, EMEA ETF Head of Equity and Commodity Product Management and Paul Syms, EMEA ETF Head of Fixed Income Product Management.
“Our success in recent years in ESG product launches has been in aggressively building out the range of options to investors, from the ESG replacement core beta products across a range of markets, to the darker green, more climate conscious products offering access to themes such as solar and clean energy,” Mellor says.
Syms says that from the fixed income perspective, it has been the innovative income range that has been the star of the year. “It’s something we have become well known for as we try to find those niches through a more innovative approach.” Syms comments that the last two years have been a tough environment for fixed income with yields on all products at historically low levels, making it difficult for investors to find a fixed income product that worked.
The solution from Invesco has been the AT1 Capital Bond UCITS ETF which has an attractive yield. He also reports growth in the ETFs based on preferred shares, not exactly fixed income products but ones that behave like fixed income assets. Invesco is the only provider in Europe to offer a range of preferred shares ETFs.
In terms of assets, Invesco’s European ESG ETF business has some USD4.6 billion in assets. “It’s grown very rapidly,” Mellor says. “Three or four years ago it was less than USD1 billion in ESG products but in particular those core beta replacement products that apply meaningful ESG criteria have seen rapid growth.”
Invesco’s fixed income products stand at USD5 billion or USD5.3 billion, with those preferred shares included, in European domiciled ETFs. Syms says: “Last year saw a real focus on the innovative part of our range with the AT1s raising USD600 million, representing our strongest ETF for inflows.”
This year, the war in Ukraine and geo-political tensions have seen appetites swing to funds based on Treasuries, with USD1.3 billion flowing into ETFs based on them since the start of the year.
Syms reports an overlap with ESG as investors are using different stages of the cycle to rotate between different shades of green in fixed income ESG ETFs.
“ESG is relatively easily applied to credit markets,” he says. “We are getting lots of enquiries into how you can apply ESG to a government benchmark.”
Both Mellor and Syms feel that business will continue on the same trajectory that has been witnessed over the last three to four years as there is a noticeable acceleration in take up for ETFs.
Syms says: “The transparency of the ETF wrapper does help with that as investors can see exactly which shade of green they are getting.”
ESG represented 50 per cent of ETF inflows into European products last year.
“As more investors are looking for it, more products are being developed and there is more interest,” Syms says. “It’s a virtuous circle scenario where clients benefit from more competition and choice, while ETF providers build new products and see more client interest.”