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Invesco PowerShares lists US Quality, Value and Momentum ETF

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ETF provider Invesco PowerShares, part of Invesco Ltd, has listed the PowerShares S&P 500 QVM UCITS ETF on the London Stock Exchange, and plans to list the ETF on additional European stock exchanges over time.

Explaining the background to the new launch, Nicolas Samaran, Head of Product Development at PowerShares (EMEA), says: “As the largest single economy in the world, the US may represent a significant portion of investors’ portfolios. However, in the last few years, research shows that it has been challenging to find sustainable outperformance and this is why a number of investors have been looking at finding a more refined range of solutions.  In particular, they have started looking at factor strategies where academia shows that individual factors have delivered performance over the long-term.

“But navigating between factors successfully can be difficult as single factors are cyclical in nature. Therefore, we have identified a market need for a strategy that combines factors and seeks to remove the risk associated with timing. A multi-factor methodology helps focus on specific factors but avoids the potential challenges of choosing and timing factors, without necessarily missing the upside that the best factor choice may have provided.”

The PowerShares S&P 500 QVM UCITS ETF seeks to replicate the S&P 500 Quality, Value & Momentum Multi-factor Index and aims to provide the solution to the twin challenges of getting value out of the US stock market and timing investment in single factors.

The firm writes that the ETF combines three well-researched, academically proven and lowly correlated factors through a systematic and transparent stock level selection process.  This methodology seeks to optimise risk / return in the US market while removing the challenge of timing single factors in isolation:  Quality identifies companies with strong balance sheets and strong historical operating performance; Value identifies those stocks that are priced attractively based on their intrinsic value and Momentum identifies those stocks that have had historical positive price movements. 

Invesco PowerShares writes that coupling value with momentum allows the investor to minimise the risk of being overexposed to value traps, writing that it is the first ETF of its kind combining Quality, Value and Momentum in this way and targeting potential superior risk-adjusted returns than single factor strategies combined. 

To determine the components of the Index, all companies included in the S&P 500 Index are assigned scores based on their performance against these three factors. These scores are then combined on an equal-weighted basis into a final factor composite. All companies are then ranked by their final factor composite with the top 100 companies being selected for inclusion in the Index.

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