Thursday, 18 April 2024

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Small-cap and Mid-cap Factors Offer Unique Advantages By

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Invesco expands its SMID cap factor ETFs to offer investors access to the differentiated return profile of small-cap and mid-cap factors

ATLANTA, April 4, 2024   /PRNewswire/ — Invesco Ltd. (NYSE: IVZ), a leading global asset management firm, announced today that it has expanded its line-up of small-and-mid-cap (SMID) factor exchange traded funds (ETFs). In the first quarter of 2024 there has been an uptick of interest into notable Invesco SMID Factor ETFs as investors search for fund profiles differentiated from the large-cap growth profiles currently dominating markets.  

For this reason, Invesco will now offer its “Growth at a Reasonable Price” strategy, captured in the large-cap Invesco GARP ETF (SPGP), in both a mid-cap Invesco S&P MidCap 400 GARP ETF (GRPM) and small-cap Invesco S&P Small Cap 600 ETF (GRPZ), applying the same methodology further down the market-cap spectrum.

“While there is often a place in a portfolio for a core large-cap growth strategy like Invesco QQQ, those investors looking for growth in the SMID space should consider ETFs with a factor screen,” says Nick Kalivas, Head of Factor and Core Equity ETF Strategy at Invesco. “The combination of less expensive valuation down the market-cap spectrum and a forecasted improvement in 2024 profit growth invites investors to look to SMID factor strategies for potential investment opportunities.”

Factor investing has always been an important bridge between passive market-cap weighted portfolios and actively managed portfolios. This is especially apparent in the SMID cap-tiers, where factor screening can provide a portfolio of unique companies that offer diversification beyond the mega-cap growth names. SMID factors can also be good portfolio building blocks, using factors to screen for small- and mid-cap companies that may tend to have higher growth prospects and less volatility than their market-cap screened counterparts. This can offer a nice balance of growth potential and stability.

In 2024, investors have recognized the opportunity with Invesco S&P Midcap Quality ETF (XMHQ), and Invesco S&P SmallCap Quality ETF (XSHQ)  seeing high levels of investor demand, gathering $1.15 billion in inflows in 1Q year-to-date.   These ETFs provide exposure to companies with high return on equity, low balance accruals, and low debt to equity at a value. Additionally, XMHQ and XSHQ do not have the same concentration issue that has been a headwind in large-cap factors.

The SMID momentum factor…

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