Each of the multi-factor indices incorporates quality, value, and momentum factors.
The Invesco S&P 500 QVM Multi-Factor ETF (QVML) tracks an index based on the S&P 500 Index; the Invesco S&P MidCap 400 QVM Multi-Factor ETF (QVMM) tracks an index based on the S&P MidCap 400 Index; and the Invesco SmallCap 600 QVM Multi-Factor ETF (QVMS) tracks an index based on the S&P SmallCap 600 Index.
QVML has an expense ratio of 0.11%, while QVMM and QVMS both have an expense ratio of 0.15%. Each are among the cheapest multi-factor ETFs in their respective categories. For example, QVML is cheaper than all other multi-factor U.S. large cap ETFs, with the exception of the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC), which costs 0.09%.
Inside the Portfolios Of QVML, QVMM, and QVMS
To construct the multi-factor indices, Invesco assigns each security in the parent index three separate “style scores,” corresponding to each of three factors: quality, value, and momentum.
The quality score is based on a stock’s return-on-equity, accruals ratio, and financial leverage ratio; the value score is based on book value-to-price ratio, earnings-to-price ratio, and sales-to-price ratio; and the momentum score is based on the risk-adjusted price performance of that stock as compared to other eligible securities.
The three scores are averaged into a combined “multi-factor” score; the stocks from the parent index with scores within the top 90% are included in the final benchmark. For example, QVML’s parent index has roughly 500 stocks, while, as of launch, QVML included 448 stocks.
Securities are weighted according to their float-adjusted market capitalization.
Invesco’s new funds are listed on the NYSE Arca.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.