Invesco Shifts $1 Billion on Signs U.S. Economy Is Back on Track

(Bloomberg) -- Invesco Ltd. has a lot riding on U.S. growth.

The Atlanta-based money manager has re-positioned a $1 billion exchange-traded fund after its proprietary signals indicated that the economy was returning to an expansionary environment, as renewed appetite for risk ended a six-month slowdown. The ETF has shed holdings in more defensive sectors such as health care and consumer staples, and added more growth-sensitive sectors, such as industrials.

Surprisingly, it wasn’t better data that prompted the change but investor demand for higher-yielding assets. Stocks have touched a record high. Credit spreads are tighter. And the greenback is having its best month since October. The markets seem to be setting aside trade concerns and uncertainty about U.S. monetary policy, and stronger-than-expected data such as last week’s jobs report is only adding to bullish sentiment.

“There’s still a risk-on inclination for investors,” said Todd Rosenbluth, director of ETF research at CFRA Research. “We are going to see continued economic growth and an improvement in the fundamentals,” he said, although “the summer does tend to be more volatile.”

The Invesco Russell 1000 Dynamic Multifactor ETF pivots between stocks with different characteristics -- such as momentum, value or quality -- depending on whether the economy is in expansion, slowdown, contraction or recovery. To determine this, a unit of the asset manager evaluates risk appetite and economic indicators every month, using a predetermined methodology.

The fund now tilts toward momentum stocks, smaller companies and those with attractive valuations, where it had once favored the low volatility and quality factors, according to Nick Kalivas, a senior equity ETF analyst at Invesco.

Manufacturing companies now comprise almost 15% of the portfolio, up from 11%, while consumer-staples exposure has dropped to about 6% from 14% a month ago, data compiled by Bloomberg show.

To facilitate the shift, more than $700 million flowed into the fund, almost doubling its assets, before a similar-sized outflow a few days later, the data show.

The fund has returned more than 21% this year, beating the S&P 500’s gain by 0.5 percentage point. Invesco took over the ETF when it bought OppenheimerFunds in May.

To contact the reporter on this story: Olivia Rinaldi in New York at orinaldi1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rachel Evans, Brendan Walsh

©2019 Bloomberg L.P.