Invesco’s global head of ETFs and indexed strategies Anna Paglia says her goal is to crack the code to provide clients with the best outcome possible. For that, she’s pursuing the most disruptive and innovative investments available, and creating some of the best ETFs including the suite of QQQ ETFs in the process.
Atlanta-based Invesco ranks as the fourth-largest ETF issuer in the world. It has over $1.4 trillion in global assets under management, of which more than $400 billion are in 370 ETFs.
Last year, the company achieved significant milestones, not the least of which was the launch of its QQQ ETF Innovation suite in October. Since then, Invesco Nasdaq 100 index (QQQM) and Invesco Nasdaq Next Generation 100 index (QQQJ) have gathered a combined $2 billion in assets. QQQM, in line with Invesco’s flagship $170 billion Invesco QQQ Trust (QQQ), provides access to the 100 largest nonfinancial stocks listed on the Nasdaq.
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QQQ ETF Suite Broadens
Meanwhile, QQQJ is a portfolio of high-growth, midcap companies that are expected to ‘graduate’ in the future and join the Nasdaq 100 index. These innovators are at the forefront of disruption. They’re defined by their high spend on research and development as a share of their revenue.
QQQJ’s top holdings include Roku (ROKU), CrowdStrike Holdings (CRWD), Etsy (ETSY), Garmin (GRMN) and Zebra Technologies (ZBRA). Etsy is on the IBD 50 stock list. QQQM and QQQJ are up 6.6% and 3.5%, respectively, year to date.
In addition to the QQQ ETF suite, Invesco also launched its first four active nontransparent ETFs in December. Nontransparent means they don’t disclose the contents of their portfolios on a daily basis. Paglia, who’s been in the ETF industry for 22 years, 11 of which at Invesco, said Invesco’s strategy has been to be laser-focused. It only launches the best ETFs with a high-level of conviction.
Competing To Be Among The Best ETFs
Paglia’s interview via email with IBD follows:
IBD: How has Invesco evolved in the past couple of years and especially during the pandemic?
Paglia: I joined Invesco in 2010 as its head of legal for the ETF business when it had less than $50 billion in assets under management (AUM). In the last 11 years Invesco’s ETF business has evolved quite rapidly. The year 2020 was a big change for me personally, as I was appointed Global Head of the ETFs and Indexed Strategies business at Invesco.
Stepping into a new senior role is stimulating under any circumstances but even more so during a pandemic. Thankfully, our talented and creative ETF team embraced the new normal and accelerated its virtual engagement with clients, increasing client interactions by around 300% as compared to the year before. We did whatever it took to answer client questions and offer them our best ideas in this challenging environment.
In January 2020, the Invesco ETF business had $274.4 billion AUM. Almost one year later we’ve hit a global AUM of $406 billion, which strengthens Invesco’s position as one of the largest global ETF providers.
Invesco’s ETF Highlights For 2020
This includes several significant milestones in the last year, such as:
- The Invesco QQQ ETF hit a milestone of $100 billion in AUM in May 2020 and is currently (as of May 7, 2021) at $159 billion in AUM.
- We launched the Invesco QQQ Innovation suite in October 2020 to offer investors varied access to the Nasdaq 100 index (QQQM) and the new Nasdaq Next Generation 100 index (QQQJ).
- Invesco S&P 500 Equal Weight ETF (RSP) — which Invesco is the only provider to offer — also hit a significant AUM milestone of over $20 billion in February 2021.
- RSP is one of only four smart beta ETFs with over $20 billion in AUM.
- Invesco also launched its first four active nontransparent ETFs in December 2020. Two were with the Fidelity active equity model and two with our proprietary Invesco model, another first for the business.
IBD: Which ETFs were the best performers last year and why? Which ones this year?
Paglia: Three of the top 5 performing ETFs in the U.S. in 2020 — (TAN), (PBW) and (PBD) — were Invesco renewable energy products. Near term volatility may persist in early 2021. However, improving fundamentals and expectations for a global race to reduce carbon emissions supports the longer-term opportunity for the renewable energy sector.
Best ETFs Face Inflation, Rising Rates
This year, with the potential for inflation and rising rates, we are also seeing strong performance from fixed income ETFs. These offer unique ways to access yield, including through active management or differentiated access. Investors have been interested in fixed income strategies like the Invesco Total Return Bond ETF (GTO). GTO is a transparent ETF actively managed by Invesco’s fixed income team. It currently offers a 12-month dividend yield of 4% and one-year performance of 9.6%.
Municipal bonds have also seen a headwind from rising rates. Invesco has the only taxable muni ETF, the Invesco Taxable Municipal Bond ETF (BAB). In 2020, 30% of muni issuance was taxable bonds, making it a highly liquid asset class with a much higher opportunity than corporate credit with comparable yields and currently well positioned.
IBD: Which funds saw the most in and outflows in 2020 and 2021?
Paglia: Our flows are telling us that concentration risk is a big concern for investors. They have been showing keen interest in Invesco S&P 500 Equal Weight ETF (RSP) since last fall. Currently, RSP has the most inflows of any smart beta ETF across the industry. Similarly, we have seen outflows in Invesco S&P 500 Top 50 ETF (XLG) as investors seem to be looking toward owning “the troops and not the generals.”
Growth Stocks Offer Opportunities
Another area where we’ve seen tremendous interest is the growth of Invesco Nasdaq Next Gen 100 ETF (QQQJ). As part of the QQQ ETF suite, it accesses the “up and coming” nonfinancial companies listed on the Nasdaq, offering midcap innovation. This was not only one of Invesco’s most successful QQQ ETF launches but the second most successful ETF launch globally in 2020. This trend was fueled by COVID and investors’ desire for portfolio growth that recognized the increased technology usage due to the rise in working from home.
IBD: How have the markets changed since the pandemic and how has Invesco adjusted its course?
Paglia: I think one of the most interesting aspects of the pandemic is how it’s changed how we work with our clients. Before COVID halted travel, in-person meetings were always a top priority. Now we can schedule a videoconference, and that gives everyone more flexibility. But that has a lot of the same value as a face-to-face discussion. So, we can increase the number of clients we’re talking to individually. That’s been great at explaining some of our bigger, suitelike capabilities to clients. I have to think this has allowed us the opportunity to get in front of a large audience to highlight some of our top performing products like RSP and QQQJ.
Invesco’s ESG Strategy
IBD: What is Invesco’s strategy regarding ESG investing and what recent funds has it launched in this area?
Paglia: Invesco was a pioneer in ESG investing, launching our first sustainable ETF over 15 years ago. We continue to expand our thematic sustainability ETF suite to offer investors new ways to align their investments with their personal values.
Globally we have 25 ESG ETFs, across EMEA, Canada and the U.S. In Canada, our fund the Invesco S&P 500 ESG Index ETF even has the ticker “ESG.” In 2020 we launched nine ETFs across the globe with an ESG theme. Invesco is committed to expanding our ESG ETF capabilities and just launched — on Earth Day — the Invesco MSCI Green Building ETF (GBLD). GBLD will be the first ETF to focus specifically on the entire green building ecosystem. That includes sustainable real estate, but also companies involved in every stage of construction, redevelopment, and retrofitting green-certified properties.
IBD: How is the Biden administration’s proposed infrastructure plan going to affect funds in those areas?
Paglia: On Inauguration Day, (President) Biden rejoined the Paris Agreement, signaling to the market the U.S.’s desire to reclaim a leadership role in reducing carbon emissions. Buildings currently account for 40% of global emissions, making them essential to reach Paris Climate Accord targets. Biden’s infrastructure plan, although still subject to Congressional approval, has a large focus on energy efficiency and the retrofitting of existing building structures to promote better sustainability.
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The companies included in GBLD provide targeted exposure to an essential theme within sustainability, and one where Invesco will be an early mover. Green building includes design, construction, redevelopment, retrofitting or acquisition of green-certified properties. It also promotes mechanisms for raising capital for effective climate change mitigation and adaptation. Green building is essential to decarbonization and will bolster an already impressive roster of environmentally sustainable investing options at Invesco.
In addition, Invesco launched the Invesco Real Assets ESG ETF (IVRA) in December. This is an active nontransparent ETF that is primarily invested in exchange traded securities of real estate, infrastructure and natural resources that meet Invesco’s proprietary standards for ESG.
Outlook For 2021
IBD: What is your outlook for the rest of 2021?
Paglia: Based on what we’re seeing in our ETF suite, high beta has outperformed low volatility over the last year. Invesco S&P 500 High Beta ETF (SPHB) is up nearly 142% compared to 26.5% for Invesco S&P 500 Low Volatility ETF (SPLV) — over 115% difference in return. Longer term, the academics and empirical evidence has supported low volatility as the rewarded factor. With interest rates still low and the economy demonstrating growth, equities face little competition from fixed income. Investors are likely to look at higher dividend payers for income. The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) has a yield just below 4% which is two times that of the 10-year treasury. That lack of competition from fixed income will also help shed light on the need for exposure while limiting risk. That’s another reason to entertain low volatility.
IBD: What would be your main message to ETF investors?
Paglia: The acceleration of technology usage during the pandemic has created a new generation of ETF users. Younger investors are embracing the ease of access offered by the ETF wrapper. We are noting that more of our ETF assets are held by direct investors and these figures continue to grow.
My main message to these new investors would be to make sure you know what you’re buying. Look behind the curtain, pop the hood, know your exposure. Not all ETFs are created equal. It is important to set very clear expectations about what you are buying. Don’t just assume that the “ETF” acronym levels the playing field.
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