Like with the nine style boxes from Morningstar, we’re starting to lead the movement in converting that style box into a factor box. This deal gives us a complete tool box from an equity perspective.
In addition, one of the most attractive things from this deal is the BulletShares lineup. In the face of an environment with rising rates, and it looks like it will be persistent in the short- and medium-term, along with prospects for a steepening of the yield curve, you can see the need for investors and their advisors to build laddered [bond] portfolios, and that’s where the BulletShares fall in perfectly.
ETFA: Now that Invesco has greater scale with Guggenheim ETFs on board, can investors expect to see more fee reductions?
Draper: The Monday that we closed the deal we announced a fee cut in the corporate bond investment-grade BulletShares ETF suite. Those ETFs were previously 24 basis points, and we cut those fees to 10 basis points. The BulletShares suite has about $8 billion to $9 billion in AUM and we think it can grow multiple times beyond that, which is why we wanted to get them at a very compelling annual rate of 10 basis points and then widen their distribution. We think Guggenheim did a pretty good job within certain channels, but we see some more opportunity for BulletShares within institutional and RIA channels.
ETFA: Even with the Guggenheim acquisition, PowerShares still significantly trails the Big Three of iShares, Vanguard and State Street in terms of ETF assets. Does that bother Invesco, or is that irrelevant to your thinking?
Draper: We manage our business strategically, and we look at all elements. But we always start with our clients. I would say that the success of PowerShares historically, and now Invesco ETFs and with Guggenheim . . . there’s a huge amount of intellectual capital that has built around smart beta and factor investing. That’s where we differentiate ourselves, and we’re really good at it. This is an area where our clients value us for our differentiated investment content that ranges from smart beta or factor ETFs to Invesco’s active management.
We want to stick close to that, but we also realize that our clients can benefit from increased scale. We feel that clients, with encouragement from certain regulations and changing technology, will probably want to have deeper relationships with fewer asset managers. We’re working hard so that they see our differentiated content and think deeper about Invesco.
I think looking at league tables is important, but if we focus on our strength of differentiated investment content we’ll get deeper relationships with clients. And the trends show that clients are starting to appreciate smart beta factors ETFs more and more. This is a segment that has a chance to grow, especially if you think volatility and rates are increasing and that we might revert back to more historical market conditions. That’s an area where our smart beta factors capabilities can help investors diversify their portfolios.
ETFA: Invesco has already announced it will soon rebrand most of its newly acquired businesses—other than Jemstep—under the Invesco banner. What’s the status of the PowerShares brand name?
Draper: When we bought Source in Europe [in 2017] we thought about needing to change the name of Source and whether it would become PowerShares or Invesco. We here in the ETF business, along with senior management, said ETFs are becoming a bigger strategic part of Invesco, so when rebranding let’s just go straight to Invesco. There might be a few weeks or so difference regarding the timing of the rebranding in Europe and North America, but wherever we have an ETF business you can rest assured they will be Invesco ETFs.