This Week’s ETF Launches: Invesco Debuts Its Smart-Beta Fixed Income Lineup

Invesco goes all-in debuting eight new fixed income products, while other notable issuers, such as First Trust, Pacer and FlexShares, bring a variety of factor and sector-rotation strategies to the marketplace.

Here are this week’s new fund launches:

For a list of all new ETF launches, take a look at our ETF Launch Center.

Smart-beta strategies within the fixed income space are relatively few and far between. Invesco takes a big step toward changing that as it launches its suite of factor-based bond ETFs. The three “defensive” ETFs in the lineup will target bond issues with better quality characteristics, such as higher credit ratings and shorter maturities. The three “value” ETFs will look for bonds with higher yields and higher return potential relative to their inherent risks. The multi-factor ETFs offer a focus on both quality and value across virtually all fixed income asset classes, including investment-grade, junk, government and emerging markets bonds.

Environmental, social and governance (ESG) investing gets a nod this week with the debut of the Impact Shares NAACP Minority Empowerment ETF (NACP B+). Its goal is to provide exposure to U.S. companies with strong racial and ethnic diversity policies in place, empowering employees irrespective of their race or nationality.

NACP uses data from Sustainalytics, the fund’s ESG research provider, to determine a company’s “Minority Empowerment Composite Score.” The 200 best-scoring companies qualify for inclusion, with that score and the company’s market cap determining the component’s weight in the index. Impact Shares is looking to do some additional good in its own right while managing this fund. It plans on donating all net advisory profits from its management fee to the NAACP.

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Pacer Financial, the company behind a series of free cash flow-focused ETFs, introduces two very different products this week – the Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE B) and the Pacer U.S. Export Leaders ETF (PEXL B-). SZNE will target sectors based on when they have historically performed better – consumer discretionary, industrials, materials and tech starting in the fall and consumer staples and healthcare starting in the spring. PEXL will start with the S&P 900 and invest in the top 100 large- and mid-cap U.S. companies with a high percentage of foreign sales and high free cash flow growth.

Small-cap specialist Opus Capital Management launches its first ETF this week, the Opus Small Cap Value Plus ETF (OSCV ). It’s an actively-managed fund that targets small-cap, dividend-paying U.S. companies with strong growth potential, higher quality and lower valuation.

The First Trust Lunt U.S. Factor Rotation ETF (FCTR B-) is a joint venture between First Trust and Lunt Capital that will use Lunt’s factor allocation methodology to invest in the sectors that present the most attractive opportunities. FCTR will look at the momentum, quality, volatility and value factors to determine the four sectors that will be targeted, each receiving 25% of the fund’s assets.

Not to be outdone, FlexShares launches its own value-based factor strategy this week. The FlexShares High Yield Value-Scored Bond Index ETF (HYGV A-) seeks to generate a higher yield than the overall high-yield bond market while maintaining a similar level of risk. To fill out the portfolio, the company generates a proprietary value score, which is determined in large part by valuation and solvency metrics.

The Minority Empowerment ETF and its charitable giving mandate might be the “feel good” story of the week, but the growth of smart-beta bond ETFs might be the bigger one. As short-term interest rates rise and the yield curve flattens, investors have shown interest in strategies that can protect against downside risk while offering the chance for above-average yields. The Seasonal Rotation ETF is an interesting idea, but its sector concentration and complete omission of the financials, energy and real estate sectors could be detrimental.

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