Invesco just positioned itself for greater success in the fast-growing fixed income ETF market. The fourth-largest U.S. ETF firm, based on total assets, is best known for index-based equity funds like the Invesco QQQ Trust (QQQ ) and the Invesco S&P 500 Equal Weight Portfolio (RSP ), but it has deep resources to leverage and support advisors seeking out actively managed fixed income ETFs.
We expect Invesco to launch four new products in the category around year-end based on recent regulatory filings. Such moves would follow active fixed income ETF product launches this year from mutual fund peers Capital Group and DoubleLine. There has been strong interest by advisors and end clients in active fixed income ETFs from JPMorgan, PIMCO, and others in 2022.
Invesco offers a range of index-based fixed income ETFs, including target maturity offerings like the Invesco BulletShares 2024 Corporate Bond (BSCO ) and smart beta ones like the Invesco Fundamental High Yield Corporate Bond ETF (PHB ). They also offer actively managed products like the Invesco Ultra Short Duration ETF (GSY ), which became part of the family through an acquisition. However, Invesco has not taken full advantage of its active management expertise and army of mutual fund managers to support ETF-centric advisors. This seems to be changing.
The pending Invesco High Yield Select ETF will be run by a team of Invesco managers, led by Niklas Nordenfelt. Nordenfelt heads up Invesco’s High Yield fixed income team and recently took over management of the Invesco High Yield Fund, an $800 million mutual fund portfolio. The mutual fund had 46% and 41% assets in BB- and B-rated bonds as of end of June 2022. Management recently wrote that exaggerated flows in ETFs have created better investment and trading opportunities this year with spikes in volatility offering attractive opportunities.
Soon Nordenfelt and team will be able to take advantage through an active ETF.
The forthcoming Invesco Municipal Strategic Income ETF will be run by a team of Invesco managers, led by Mark Paris, chief investment officer and head of municipals for the Invesco Municipal Bond team. Paris and team run the $3.1 billion Invesco Municipal Income mutual fund, which invests primarily in high-investment-grade bonds (AA-rated and above). However, the ETF plans to invest 50%–65% of its assets in low- to medium-quality municipal securities, which Invesco defines as bonds rated BBB (or equivalent and below), which should result in a higher yield than the mutual fund.
The soon-to-come Invesco Short Duration Bond ETF will also be run by a team of Invesco managers, led by Michael Hyman, head of global credit securities for Invesco fixed income. Hyman and team manage the $2.5 billion Invesco Short Term Bond Mutual Fund. Unlike GSY, which has an average duration of 0.7 years, the managers of the Short Duration Bond ETF will utilize the Bloomberg 1-3 Year Government/Credit Index as a reference in structuring the multi-sector portfolio. This should result in a slightly higher yield than GSY in exchange for modestly more interest rate risk.
A fourth upcoming active ETF, the Invesco CLO Floating Rate Note ETF, will primarily invest in collateralized loan obligations (CLOs) that have limited interest rate sensitivity and strong credit profiles. The fund is to be managed by Scott Baskind, head of global private credit for Invesco, and Ian Gilbertson, co-head of U.S. CLOs for Invesco.
None of these ETFs have tickers or expense ratios yet, which is common this early in the product development process. However, we expect Invesco to use its scale to competitively price the offerings.
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