When bond markets seized-up during the pandemic, fixed income ETFs went through their first proper liquidity crisis – and passed with flying colors.¹ That resilience is helping drive a wave of inflows into these strategies. Learn how Invesco’s expertise in fixed income investing and ETF innovation can help you navigate this sea change.
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Fixed Income ETFs
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Taking advantage of private real estate can optimize a portfolio‘s growth and income potential, enhance diversification, and help to hedge against inflation. But navigating the risks and opportunities requires deep and varied experience. You need a partner that can provide expertise on both sides of the balance sheet: real estate debt and equity.
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Why investment grade is attractive — and defensive
Turmoil in banking and increased and market uncertainty may warrant a greater focus on high quality assets and defensive investment strategies.
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Invesco Fixed income SMAs
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Invesco Fixed income ETFs
The growing universe of fixed income ETFs gives investors more options for accessing bond markets.
Whether it’s designing a new product, finding alternative ways to engage with colleagues and clients, or harnessing new technology the Invesco ETF team knows how to innovate. In this video Brian McMullen, fixed income ETF strategist, talks stress tests, building track records and earning trust.
A behind the scenes look at Invesco’s ETF ecosystem
INTERVIEW
You’ve been an innovator for a while, making the case for fixed income ETFs when the market wasn’t really pushing for them. What has that experience taught you? Patience and perseverance. We’re one of the largest fixed income ETF providers in the market and unlike other issuers, we compete on value rather than price. We’re not interested in being the lowest-cost provider. There’s certainly a place for that, but it’s not for us. Our focus is having a long-term vision and our conviction has borne fruit for our clients.
Unlike retail investors, institutional investors seem to be waking up to fixed income ETFs. Why is that? Institutions are moving large amounts of money in short amounts of time. When you get to that size and scale, you want to make sure your investment vehicle is something you trust. Over the course of the pandemic, fixed income ETFs have proven themselves worthy of that trust. Institutional investors have pushed the throttle forward ever since. Where do you see fixed income ETFs within a portfolio? Our clients use fixed income ETFs in a several ways to express various investment views. An institutional client might use them in a supplemental way to get access to a part of the market they don’t feel that confident about. We also see clients use them more tactically, in the form of a fixed income ETF that has an active options market. What about using fixed income ETFs as an alternative to cash allocations? That’s one of the most interesting adoptions we’ve seen over the last five years. For example, a senior loan manager who typically has anywhere from 2% to 5% of cash in their portfolio for liquidity purposes, which can potentially drag down performance, can use a fixed income ETF to give them liquidity and market exposure.
Learn more about Invesco’s ETF lineup
Brian McMullen Fixed Income ETF Strategist
“Over the course of the pandemic, fixed income ETFs have proven themselves worthy of trust.”
Brian McMullen, Fixed Income ETF Strategist
Fixed income ETF strategist Brian McMullen talks to Citywire about Invesco’s deep-rooted hunger for innovation, the rising popularity of fixed income ETFs and the importance of sticking to your principles.
Patience
&
perseverance:
Invesco ETFs | Invesco US
Demand surges for fixed income ETFs
Although the first fixed income ETF was launched eight years after its equity counterparts, fixed income ETFs are now projected to grow at a similar rate, now crossing the $5 trillion mark.⁴ What’s more, the pandemic proved to be a much-needed stress test for fixed income ETFs. When the underlying bond markets seized up during the pandemic, fixed income ETFs behaved exactly as they were supposed to—providing investors with liquidity when they needed it most.
Extensive ETF experience
Many investors are familiar with our equity ETF experience, but you may not know our fixed income ETF history. We launched the first alternatively weighted fixed income ETF in 2007, and were the first issuer to launch a bank loan ETF in 2011. But we’re not content to rest on our history. We’re constantly thinking about new ways to differentiate our product range to serve our clients.
Invesco Investment Grade BulletShares
Explore how BulletShares can help provide targeted exposure to investment grade bonds.
Invesco BulletShares ETFs
Target Maturity
Invesco Equal Weight 0-30 Year Treasury ETF (GOVI)
Learn more about our ‘value’ approach to investing in the US Treasury market.
Invesco Equal Weight 0-30 Year Treasury ETF
Access
Total Return Bond ETF (GTO)
Provide portfolios with enhanced income and return potential relative to traditional core fixed income products.
Invesco Total Return Bond ETF
Active Management
Invesco High Yield BulletShares
Discover how defined maturity strategies can be helpful tools for navigating volatile interest rates.
Invesco Senior Loan ETF (BKLN)
Provide high income potential, rising rate protection, and diversification by investing in senior loans.
Invesco Senior Loan ETF
Invesco Variable Rate Investment Grade (VRIG)
Diversify portfolios from traditional bonds by holding a core allocation to non-agency residential and commercial mortgage
Invesco Variable Rate Investment Grade ETF
Featured Products
Actively managed fixed income ETFs attempt to outperform a benchmark index.
Subheader
Access to “non-core” segments of fixed income markets that are not included in aggregate indexes and/or uses a smart beta index methodology.⁵
Defined maturity ETFs provide investors a targeted duration exposure and more predictable outcomes relative to traditional fund.
Invesco Fixed Income ETFs are designed to provide “Intelligent Income,” featuring strategies that provide targeted duration exposure, enable access to non-core areas of the market, and strive to outperform through active management.
Intelligent Income
Powered by a rigorous, repeatable process that consistently identifies new themes and opportunities.
Mutual funds
Offer exposure to diverse fixed income sectors through active and index-based management styles.
Exchange-traded funds
Allow financial professionals to create tax-smart, diversified fixed income portfolios that can be customized to match clients’ views, values, tax situation, and liquidity needs.
Separately managed accounts³
And our strategies are available in the solution that works best for your needs.
Fixed income for every outcome
$474B
years of experience, on average
fixed income professionals
in client assets²
185
18
Whether you’re looking for income, diversification, capital preservation or total returns, our global fixed income teams have the strategies, scale, and flexibility needed to match your objectives.
A conversation with our expert
Find out more
The information on this site does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund. Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 80,000, 100,000 or 150,000 Shares. Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. Before investing, investors should carefully read the prospectus/summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the Fund call 800 983 0903 or visit invesco.com for the prospectus/summary prospectus. Invesco Managed Accounts LLC (IMA) is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco's retail products and private placements. Both are indirect, wholly owned subsidiaries of Invesco Ltd. Citywire and Invesco are not affiliated. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
1 Source: Risk & Reward: Research and Investment Strategies, Invesco, 3rd issue 2021. Research by Invesco covering January through June 2020 shows that fixed income ETFs served as price discovery instruments for investors as they supported heavy intraday trading volume relative to over-the-counter bond markets. 2 As of March 31, 2023 3 Fixed Income SMAs are available from Invesco Managed Accounts, LLC. 4 Source: Invesco internal research estimates. 5 Smart Beta represents an alternative and selection index-based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both. Smart beta portfolios may underperform cap-weighted benchmarks and increase portfolio risk.
Patience and perseverance:
Swipe to explore.
2
Bert Crouch, Portfolio Manager and Head of North America at Invesco Real Estate, talks about where we are in the cycle, why real estate debt looks particularly attractive, and why now may potentially be an opportune entry point for investors.
Why now for real estate?
A world of experience
$91.1B
years of real estate experience
professionals across 21 global offices
real estate assets globally
586
40
Invesco Real Estate has a decades-long track record of building global real estate investment programs with specialist capabilities, backed by the resources of a large, diverse asset manager ¹
Our process
Cerulli research
Experience
1 Source: Invesco Real Estate as of March 31, 2023 2 There may be material differences in the investment goals, liquidity needs, and investment horizons of individual and institutional investors. Investors should consult with a financial professional regarding their own situation and risk tolerance before making any investment decisions. 3 Source: Estimates by Price Waterhouse Coopers, 2023 4 Source: Invesco Ltd. AUM of $1,487.3 billion USD as of September 30, 2023. AUM figure includes all assets under advisement, distributed and overseen by Invesco. 5 Property images shown are current investment properties of Invesco and are meant illustrate the different types of properties owned by Invesco Real Estate. 6 Not all strategies may be available to all investors. 7 Trailing 5-years of data, last 5 years of quarterly returns annualized 2018Q1-2022Q4, latest data available. Source: Invesco Real Estate using data from the following indices: Direct Lending – Cliffwater Direct Lending Index, Private Real Estate Debt – Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2), High Yield – Bloomberg US Corporate High Yield Index, Senior Loans – Morningstar LSTA Leverage Loan 100 Index, Private Real Estate Equity – NCREIF Property Index, Corporate Bonds – Bloomberg U.S. Corporate Total Return Value Unhedged USD Index, CMBS – Bloomberg US CMBS Investment Grade Index, Investment Grade Bonds – Bloomberg U.S. Aggregate Total Return Index, Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index. Past performance is not indicative of future results. An investment cannot be made into an index. There is no guarantee that any trends shown herein will continue. 8 For illustrative purposes only. Capital stack is the layers of funding provided on a real estate investment. Relative risk within the capital stack tends to be associated with payment priority of various positions within the capital stack. The two broadest categories of the real estate capital stack are equity and debt, with debt typically receiving senior priority on loan repayments. 9 Source: Green Street Advisors, Bureau of Labor Statistics as of September 30, 2023. Net operating income (NOI) growth is the average NOI growth by year across the major property sectors in North America: apartment, industrial, mall, office and strip retail. NOI growth equals all revenue from a property minus all reasonably necessary operating expenses. NOI growth may not be correlated to or continue to keep pace with inflation. Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a representative basket of goods and services. 10 Source: Invesco Real Estate using data from the RE Credit - Gilberto-Levy 2 Commercial Mortgage Index, Direct Lending– Cliffwater Direct Lending Index, Investment Grade Bonds – Bloomberg U.S. Aggregate Total Return Index, High Yield – Bloomberg US Corporate High Yield Index , Senior Loans – S&P/LSTA Leverage Loan TR, Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index, Corporate Bonds – Bloomberg U.S. Corporate Total Return Value Unhedged USD Index, CMBS – Bloomberg CMBS Total Return Index Value, Private RE – NCREIF Property Index. Trailing 10-years of data, last 10 years of quarterly returns annualized 2012Q4-2022Q4, latest data available. Past performance is not indicative of future results. Diversification does not guarantee a profit or eliminate the risk of loss. 11 Sharpe Ratio: A measure of an investment’s risk-adjusted performance, calculated by comparing its return to that of a risk-free asset. 12 Commercial Mortgage-Backed Securities (CMBS) 13 Correlation: statistic that measures the degree to which two variables move in relation to each other 14 Source: Cerulli Associates, in partnership with the Investments & Wealth Institute Not a Deposit | Not FDIC Insured | Not Guaranteed by the Bank | May Lose Value | Not Insured by any Federal Government Agency The information on this site does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. About risk Investments in real-estate related instruments may be affected by economic, legal, or environmental factors that affect property values, rents or occupancies of real estate. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies, and their shares may be more volatile and less liquid. Investing in commercial real estate assets involves certain risks, including but not limited to: tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market. Alternative investment products, including hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for hedge funds and private equity, and none is expected to develop. There may be restrictions on transferring interests in such investments. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods. Most senior loans are made to corporations with below investment-grade credit ratings and are subject to significant credit, valuation and liquidity risk. The value of the collateral securing a loan may not be sufficient to cover the amount owed, be found invalid or used to pay other outstanding obligations. The loan's collateral may be difficult to liquidate, or a majority of the collateral may be illiquid. Treasury securities are backed by the full faith and credit of the US government as to the timely payment of principal and interest. Mortgage- and asset-backed securities are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Securities may be prepaid at a price less than the original purchase value. The opinions expressed are those of Invesco Real Estate or Bert Crouch and are based on current market conditions which are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. Invesco Distributors, Inc. is the U.S. distributor for Invesco's retail products and private placements. Invesco is not affiliated with Citywire and Cerulli Associates Important Index Information Direct Lending is represented by the Cliffwater Direct Lending Index (CDLI) which seeks to measure the unlevered, gross of fee performance of U.S. middle market corporate loans, as represented by the asset-weighted performance of the underlying assets of Business Development Companies (BDCs), including both exchange-traded and unlisted BDCs. Private Real Estate Equity is represented by the NCREIF Property Index (the “NPI”) on the basis that the NPI is the broadest measure of private real estate index returns. The NPI is published by the National Council of Real Estate Investment Fiduciaries and is a quarterly, composite total return (based on appraisal values) for private commercial real estate properties held for investment purposes including fund expenses but excluding leverage and management and advisory fees. The NPI excludes leverage and therefore is less volatile than real estate vehicles, which employs leverage. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors and held in a fiduciary environment. NCREIF data reflects the returns of a blended portfolio of institutional quality real estate and does not reflect the use of leverage or the impact of management and advisory fees. Investment Grade Bonds are represented by the Bloomberg US Aggregate Bond Index, an index of securities that covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities; and is subject to credit risk. CMBS are represented by the Bloomberg US CMBS Investment Grade Index which measures the market of US Agency and US Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn. Treasuries are represented by the Bloomberg U.S. Treasury Unhedged Index which measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index. STRIPS are excluded from the index because their inclusion would result in double-counting. Private Real Estate Credit is represented by the Giliberto-Levy Commercial Mortgage Performance Index (the “G-L 1”) which measures the investment performance of select private-market investments in commercial real estate debt. The G-L 1 Index is comprised of fixed-rate commercial mortgage loans held on balance sheets of institutions such as life insurance companies and pension funds. G-L 1 Index returns are based on a market-value-weighted blend of office, apartment, retail, industrial, lodging, mixed-use and other miscellaneous property types. G-L 1 Index performance tracks senior loans only; it does not include construction loans, mezzanine and other subordinate instruments and bridge loans made by such institutions. Private Real Estate Debt is represented by the Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2) which measures total return and its components for many forms of high-yield CRE debt, such as high-yield commercial mortgage debt performance for high-yield loans, such as mezzanine loans, preferred equity and "B" notes. Corporate Bonds are represented by the Bloomberg U.S. Corporate Value Unhedged USD Index which measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers. High Yield is represented by the Bloomberg US Corporate High Yield Bond Index which measures the USD-denominated, high yield, fixed-rate corporate bond market. Senior Loans are represented by the Morningstar LSTA US Leveraged Loan 100 Index which is designed to measure the performance of the 100 largest facilities in the US leveraged loan market. US Equity is represented by S&P 500 Index, an unmanaged index of the 500 largest stocks, weighted by market capitalization and considered representative of the broader stock market. Public real estate, bonds, treasuries and equities provide ready liquidity and are easily traded. The indexes mentioned above are meant to illustrate general market performance and it is not possible to invest directly in an index. The prices of securities represented by these indexes may change in response to factors including: the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates and investor perceptions. All indexes are unmanaged and do not include the impact of fees and expenses. Comparisons shown are for illustrative purposes only and do not represent specific investments or the performance of private real estate credit. Investment grade bonds and high yield bonds are typically issued in $1,000 or $5,000 denominations and when purchased as a new issue, are not subject to fees or expenses. Leveraged loan denominations are negotiated by the issuer and arranger and typically are subject to fees and expenses. While the liquidity of assets in public markets depends on its credit rating and market conditions, there exists a secondary market for such bonds. Furthermore, issuers of investment grade bonds and high yield bonds are contractually obligated to pay periodic interest and repay a fixed principal amount at maturity.
The quiet giant
Once reserved for institutional investors, alternative investment strategies are becoming increasingly accessible to retail investors.² Investing in real estate is the very manifestation of active management – whether you’re the purchaser or the lender. Investing in a physical asset that can be renovated or improved can never be passive. These asset classes are estimated to double in size to $21.1tn by 2025, accounting for 15% of global AUM.³
Read the full report
Advisors told Cerulli that they’re planning to increase allocations to alternative investments, with optimal allocation 38% higher than current levels.
In 2023, Cerulli Associates, in partnership with the Investments & Wealth Institute, surveyed more than 200 advisors on their use of alternative investments and conducted 25 research calls to gather qualitative insights. Advisors identified ways an expanded shelf of alternative investments – such as private real estate – could help enhance their business.
Advisors are looking to private markets to differentiate their practice
EXPOSURE
Separate Accounts
Commingled & Institutional Funds
Wealth Management
Global Direct Real Estate ⁶
Core Income/Core-Plus Debt Value Added* Opportunistic**
* Value Added: A property that may offer an opportunity to increase cash flow through renovations or other operational efficiencies, with generally moderate-to-higher risk and target returns. ** Opportunistic: A real estate investing strategy that prioritizes upside while accepting the corresponding risk; generally higher risk and return targets.
Learn more about the team
With experts in 21 countries, Invesco Real Estate understands the local nuances that drive real estate opportunities. At the same time, every facet of our organization – from sourcing to due diligence and property valuation to risk management – is supported by the significant global resources of Invesco, a $1.5tn asset manager.⁴ Our access to capital, ability to execute and history of investing through multiple real estate cycles separates Invesco Real Estate from peers. We leverage our local and global expertise to create a comprehensive lineup of direct real estate strategies to help meet investors’ needs.
Experience in real estate matters
“Winston Churchill famously said,
‘never let a good crisis go to waste’
and that’s how we look at it. You don’t want to exploit it [economic downturns], but you do need to take advantage of the current environment … we’re really focused on three key areas. Number one is credit.”
Create optimal risk-return relationship
Portfolio Construction
STEP 3
Real Estate Equity
Security Selection
STEP 2
Real Estate Equity Versus Fixed Income
Capital Structure Allocation
STEP 1
Invesco House View
Portfolio Objectives & Constraints
Our strategies are supported by extensive research that is shared throughout the organization. Importantly, our fully integrated real estate platform is not siloed – our global research and property-level analysis is leveraged to create equity and debt strategies to meet the wide-ranging needs of our clients. Our 580+ strong team searches for opportunities across the real estate investing value chain and constructs portfolios with an optimal risk-return relationship.
quiet
The
giant
Expertise across equity and debt strategies
Bert Crouch Managing Director, Head of North America, Invesco Real Estate
Three reasons to consider real estate credit now
Higher yield potential, reduced basis, and opportunities for alternative lenders due to proposed capital requirements for banks are positives for real estate credit. November 3, 2023
By Michael Sobolik
REAL ESTATE
Investment real estate — not just offices
With the media focus on the office sector, real estate investing opportunities may be missed. The opportunity set for the sector is more than office buildings. September 20, 2023
Podcast: What's next for the commercial real estate market?
After the recent issues at regional banks, commercial real estate has been in the spotlight. The headwinds have been well-publicized, but challenges create opportunities. Bert Crouch joins the Greater Possibilities podcast to discuss. May 12, 2023
By Brian Levitt
Optimize
Strengthen your investment process and portfolio outcomes with a range of products and expert guidance.
Enhance
Optimize your team’s performance in a complex, competitive environment.
Connect
Our time-tested strategies can help you educate and encourage stakeholders to take the next step in private markets investing.
Integrating alternative investments can be complex and challenging, but Invesco is here to help. Through our Total Client Experience (TCX) platform, we can help clients in three key ways:
Our commitment to you
Our real estate portfolio is diversified across sectors including healthcare, multifamily, industrial, self-storage, retail, and student housing. Take a look at a few of our featured properties: ⁵
Check out Invesco’s real estate investments
GALLERY
Potential inflation hedge
Floating rate debt adjusts in a rising rate environment, maintaining attractive relative income return potential.
Position in the capital stack
Debt position is relatively more senior against capital value movements on the underlying property.
Income potential
Debt positions focus on securing a stated rate of return through interest, fees and repayment terms.
Current market conditions have created potential opportunity to originate attractive loans with robust credit and structuring profiles, with a premium to recent historical pricing.
Commercial real estate debt?
NoHo Flats
Multifamily
TAMPA, FL
Bend Self Storage
Self Storage
BEND, OR
Sunbelt Medical Office Portfolio
Medical Office
CA, CO, FL, TN, TX
Legacy West
Multi/Retail/Office
PLANO, TX
The Shops at Crystals
Retail
LAS VEGAS, NV
Tempe Student Housing
Student Housing
TEMPE, AZ
PROJECT
Over the past ten years, commercial real estate debt has demonstrated a leading Sharpe Ratio and limited correlation with other fixed income investments – including private real estate equity.
So what’s driving the opportunity now?
Higher interest rates
Interest rates are higher than pre-Covid 19 and expected to stay high in the long term, which should support yields.
Reduced property values
Real estate equity prices have fallen since early 2022, so new loan collateral values will likely be lower than previous peaks.
Tighter bank regulation
Proposed higher bank capital requirements could diminish bank lending, which non-bank lenders could fill.
3
13.3%
9.6%
INCREASE
38%
14
Commercial real estate debt has historically delivered enhanced income yields compared to traditional fixed income options
CHART
Illustrative capital stack ⁸
Real estate income has historically kept pace with inflation
Whole Loans
Equity
Full Capital Stack
65%
35%
Last
FIRST
Payment Priority
Payment priority goes towards the whole loan (senior and junior tranche) servicing first, with the residual going to the equity investors in the building.
(Whole Loan & Equity)
Return
Risk
Diversification
Little to no correlation to equities and lower volatility compared to most fixed income asset classes.
Past performance is not a guarantee of future results.
10
Little to no correlation to equities and lower volatility compared to most fixed income asset classes. Over the past ten years, commercial real estate debt has demonstrated a leading Sharpe Ratio and limited correlation with other fixed income investments — including private real estate equity.
13
Floating rate debt adjusts in a rising rate environment, maintain attractive relative income return potential.
12
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Fixed income ETFs have been one of the dominant drivers in the fixed income space. What’s behind their growth? We’ve seen an AUM growth of about a trillion dollars over the past ten years, with the biggest jump happening in the last three years. Covid was crucial in that regard because it turned out to be a much-needed stress test for fixed income ETFs. When the underlying bond markets seized up during the pandemic, fixed income ETFs went through their first proper liquidity crisis – and passed with flying colours. They behaved exactly as they were supposed to and provided investors with liquidity when they needed it most. That resilience is a big driver for the increasing popularity of fixed income ETFs, especially among institutional investors.
From Innovator to Market Leader
There’s lots of ways you can implement fixed income ETFs and it’s that very flexibility that’s a big appeal for clients.
Invesco made the case for fixed income ETFs even when it wasn’t cool to do so.
What gives Invesco the edge when it comes to fixed income ETFs? We’re one of the largest fixed income ETF providers in the market and our brand is very differentiated. Unlike other issuers, we compete on value rather than price. We’re not interested in being the lowest-cost provider we can possibly be. There’s certainly a place for that, but it’s not for us. Instead, we add value by coming up with innovative solutions that give you first-to-market access. What kind of solutions? We were the first issuer to launch a bank loan ETF in 2011 and back in 2007, we launched the first alternatively weighted fixed income ETF. We’re constantly thinking about new ways to differentiate our product range. Broadly speaking, it falls into three categories: active ETFs, non-core fixed income, which provides cheap beta exposure, and BulletShares fixed income ETFs, which give investors access to bond-like allocations via the ETF wrapper. Quite the trailblazer. You’ve been an underdog for a while, making the case for fixed income ETFs when the market wasn’t really pushing for them. What has that experience taught you? Patience and perseverance. A tagline we often use is ‘pioneering the new possible’ and that’s the mindset we like to approach the fixed income ETF market with. It’s about having a long-term vision of where you want to go and where you think market and client trajectories are going. Our legacy and conviction have borne fruit for us and we’re excited about the future. It’s a great time to be in the overall ETF ecosystem at large.
Turmoil in banking and increased and market uncertainty may warrant a greater focus on high quality assets and defensive investment strategies
What's the disruptor in fixed income?
Inflation is back. Whether sticky or swift moving, it requires careful consideration in portfolios. Whatever your clients’ risk profile we have a strategy, and the expertise to navigate the next cycle and beyond.
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Invesco's fixed income solution
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Access to “non-core” segments of fixed income markets that are not included in aggregate indexes and/or uses a smart beta index methodology
Defined maturity ETFs provide investors a targeted duration exposure and more predictable outcomes relative to traditional fund
Actively managed fixed income ETFs attempt to outperform a benchmark index
Invesco Fixed Income ETFs are designed to help provide “Intelligent Income” covering target maturity, access, and active management.
Unlike retail investors, institutional investors seem to be only waking up to fixed income ETFs. Why’s that? Those institutions are moving large amounts of money in pretty short amounts of time. When you get to that size and scale, you want to make sure that your investment vehicle is going to be something you trust. Over the course of the pandemic, fixed income ETFs have proven themselves worthy of that trust. Institutional investors have pushed the throttle forward ever since. So March 2020 was a real turning point for fixed income ETFs. Definitely. The Federal Reserve started buying fixed income ETFs as part of a two-year programme. That backing was a big vote of confidence for the vehicle – a stamp of approval if you like. Would you agree that fixed income ETFs are for professional buyers and retail investors alike? A hundred percent. Buying individual bonds is extremely difficult for retail investors, be it from a cost and transaction or a liquidity standpoint. The ETF vehicle is made for those clients. Fixed income ETFs are for everyone. Where do you see fixed income ETFs within a portfolio context? Are they more than just satellite positions? It depends. Our clients use fixed income ETFs in a bunch of different ways to express various investment views. An institutional client, for example, might use them in a more supplemental way to get access to a part of the market they don’t feel that confident about. We also see clients using them more tactically, for instance in the form of a fixed income ETF that has an active options market. What about using fixed income ETFs as an alternative to cash allocations? That’s one of the most interesting adoptions we’ve seen over the last five years we’ve been working with asset managers. Let’s look at the example of a senior loan manager who typically has anywhere from 2%to 5% of cash in their portfolio for liquidity purposes. Instead of having cash potentially drag down performance, they might use a fixed income ETF that’s giving them liquidity and exposure to the market. In other words, there’s lots of ways you can implement fixed income ETFs and it’s that very flexibility that’s a big appeal for clients.
Atlanta, Georgia, is known for many things (hip hop, sprawling parks and the Braves being some of them). Incidentally, it’s also home to Invesco, one of the largest fixed income ETF providers on the market. We sat down with the company’s fixed income ETF strategist Brian McMullen to talk about its deep-rooted hunger for innovation, the rising popularity of fixed income ETFs and the importance of sticking to your principles.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
wave 3
Taking advantage of private real estate can enhance a portfolio’s growth, income potential¹, diversification², and help smooth volatility—but navigating the risks and opportunities requires deep and varied experience. You need a partner that can provide expertise on both sides of the balance sheet—real estate debt and equity.
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