Invesco Ltd. entered the ETF business in 2006 when it bought the PowerShares brand, and during the past three years it has flexed its muscle in the space with a trio of moves including the transfer of both the assets and management of the PowerShares DB suite from Deutsche Asset & Wealth Management, the acquisition of London-based ETF provider Source, and its takeover of Guggenheim Investments’ ETF business. The latter deal, which closed last month, solidifies Invesco PowerShares’ place as the fourth-largest ETF provider in the U.S. and bolsters its product lineup—particularly in the areas of smart beta and fixed income.
Beyond that, the Atlanta-based financial services giant stepped into digital advice arena in 2016 with its purchase of robo-advisor Jemstep. These recent moves are tied together with a calculated purpose, and ETFA recently spoke with Dan Draper, Invesco’s global head of ETFs, about the company’s strategy regarding ETFs in particular and investment management as a whole.
ETFA: What motivated Invesco to buy Guggenheim’s ETF business?
Draper:
Invesco bought PowerShares in 2006. The [PowerShares] founders built the business to about $3.5 billion in AUM, which was phenomenal for a startup. Post-Guggenheim [acquisition], we have somewhere around $215 billion in AUM. Invesco has been investing in the ETF business since 2006, and the evolutionary part of the strategy for Invesco is that while ETFs have always been important, it’s now very substantial at $215 billion out of nearly $950 billion in Invesco’s overall size. We think it’s going to grow a lot faster.
In addition to ETFs, there are several other strategic growth areas where Invesco has particular expertise. One area is solutions, as investors are becoming more solutions-focused. And ETFs are part of Invesco’s solutions going forward in terms of building models and portfolios. Another big focus is the digital revolution, particularly in the robo digital advice space. Invesco bought digital advisor Jemstep two years ago. With ETFs being components within solutions, and as solutions become more embedded in digital strategies, you can see the synergies.
Being successful in ETFs is about having scale and being able to offer more complete portfolio solution tools.
One big change we’ve seen is the adoption of smart beta and factor ETFs, and PowerShares launched the first multifactor ETFs in 2003. The thought among Invesco senior management was, ‘Let’s get bigger in a hurry, and which business in the U.S. can best complement Invesco ETFs from a smart beta and factor perspective?’ And our number one target was Guggenheim because of their complementary products and their clients. There’s just a lot of synergies.
ETFA: What are the synergies between Invesco’s and Guggenheim’s ETFs?
Draper: There’s a big trend among regulators to encourage advisors and clients to think more holistically around solutions. It [the Guggenheim purchase] helps us complete the smart beta lineup, and it allows us to talk holistically [with clients]. For example, when you look at equal weighting it’s one of the simplest and most effective forms of smart beta. Us getting the leading product in the marketplace regarding the S&P 500 equal weight [the former Guggenheim S&P 500 Equal Weight ETF, now called the PowerShares S&P 500 Equal Weight Portfolio (RSP)] complements our existing full range of single, equity-factor ETFs on the S&P 500.