How Institutional Investors areUsing ETF

Tom Digby
Head of ETF Business Development & Capital Markets APAC
ETFs & Indexed Strategies

Why are more Institutional investors using ETFs?

Cost effective building blocks, low fees, consistent performance with the ability to outperform certain benchmarks

Enhancing portfolio liquidity, instantaneous market access through continuous trading in the secondary market

Ease of use, to a diversified basket of stocks in a single trade with standard custody or prime accountDepth and breadth of product offering, across many asset classes and exposures to different markets

Improving performance, using alternative weighting or innovative income strategies to tactically tilt portfolio or enhance yield

Source: Invesco, for illustrative purposes only.

2How are Institutional investors using ETFs?

New

Sector
Thematic
Rotation
TrendsStrategicCore
Asset
Strategic
Allocation
Diversifier

Instant

TacticalLiquidAsset
Market
Allocation

AccessETFs
An efficient investment tool
Regional
Access

Yield

Style
rotation

Source: Invesco, for illustrative purposes only.
3How are Institutional investors using ETFs?

ESG
Integration

CaptureThematicTrends

Core
Strategic
Diversifier2.0
ETF vs ∆1
products

Instant
LiquidMarketAccess

ETFs
Multi-asset innovation

Transition
Management

Regional
Regional
Enhanced
Performance
AccessCash
Equitization

Pure
Style
Factorrotation
Tilts

Risk
Transfer &Portfolio/MarketHedging

Innovative
Yield
IncomeTargeted
Duration

Source: Invesco, for illustrative purposes only.
4How are Institutional investors using ETFs?

2.0?

?
ESG
Integration?

ETF vs ∆1
products

Core
Strategic
Diversifier

CaptureThematicTrends?

?

ETFs
Multi-asset innovation

Transition
Management?
Regional
Regional
Enhanced
Performance
Access?

?

Instant
LiquidMarketAccess?
Source: Invesco, for illustrative purposes only.

CashEquitization

RiskTransfer &Portfolio/MarketHedging?
Pure
Style
Factorrotation
Tilts

Innovative
YieldIncome?

TargetedDuration?
5StrategicAssetAllocation

S&P 500 Equal Weight
Improves diversification

Equally Weighting gives exposure to the all the companies in the S&P 500
S&P 500 Index(market cap weighted)

S&P 500 Equal Weight Index

5%
9%
20%

Core
StrategicDiversifier

S&P 500 concentration near its 40-year high• In 2021 the weight in the top 10 companies
peaked at 30.5%, now its 25.5%• In 2014 the weight to the top 10 companies
was 17.5%, a 40-year low

20%

How much bigger can American technology
companies get?
16%20%20%

67%20%■ Companies 1-100■ Companies 101-200■ Companies 201-300■ Companies 301-400■ Companies 401-500

S&P 500

S&P 500 EW

67%

20%

16%

20%

9%

20%

5%

20%

3%20%

• It is 12% of the S&P 500 Index• Individually both the American technology
giants have a market cap greater than theS&P 500 Utilities, Materials and Real Estatesectors• Combined have a market cap comparable tothe Financial SectorSource: Morningstar, Bloomberg and S&P Dow Jones as of December 31, 2022
6

StrategicAssetAllocation

Low Volatility

Core
Strategic
Diversifier

Index Construction

Index construction•Underlying universes are the constituents of the S&P 500, S&P
MidCap 400 and S&P SmallCap 600 Index•Least volatile quintile of stocks form the index•

These stocks are weighted by the inverse of their volatility

S&P 500/S&P MidCap400/ S&P SmallCap 600

Identify the least volatile quintile ofstocks over the past 252 trading days

Inverse volatility weighted(least volatile stocks
receive the highestweights)
LowVolatility▪
•

Least volatile stocks receiving the highest weights

Indexes rebalanced quarterly▪

3rd Friday of Feb, May, Aug and Nov

For Illustrative purposes only7

Our innovative income solutions
To help enhance and diversify income
Traditional approaches for bondinvestors

Examples of innovative Invesco solutions
1. Look across thecapital structure

Increaseduration

2. Diversify into
Reduce quality /increase credit
risk

Innovative
IncomeYield

alternative
investment gradeassets

3. Reduce quality but✓ AT1 bonds✓ Corporate hybrid bonds✓ US preferred shares✓ US senior loans✓ US Municipal Bonds(taxable and tax freeversions)✓ US HY Fallen Angels

take a selective
approach

For illustrative purposes.
Diversification does not guarantee a profit or eliminate the risk of loss. Please note that some products may not be registered for distribution in your jurisdiction.

8

Advantages of using an ETF to invest in AT1s

Yield

Innovative
IncomeDiversification
ETF offers diversification acrossthe AT1 universe•••

Being a relatively small universe, AT1s can have a high degree of idiosyncratic risk
Balance sheet opacity can make it difficult to identify risks
Minimum lot sizes can make it difficult for smaller investors to achieve diversified exposure

Rebalancing
ETF manages all ongoingrebalancing needs within thefund•••Coupon income is automatically reinvested or paid out on a fixed schedule
No need to monitor new issues or bonds being called
FX forwards monitored daily, adjusted/reset and rolled for currency hedged share classes

Access to trading
relationships
Invesco ETF has access to tier
1 trading relationships•••Cost of investing in fixed income more than the headline fee
Bonds trade over the counter and less liquid asset classes may have wide bid-offer spreads
With Invesco, investors are accessing the trading relationships of a $1.4Tn asset manager1

Securities lending revenue
ETF may benefit from additional
revenues••

Fixed income ETFs can lend securities to generate additional income
Invesco’s conservative securities lending programme is limited to 30% of AUM with 90% of the revenue
generated going to the ETFiBoxx USD Contingent Convertible Liquid Developed Market AT1 (8% Issuer Cap) Index
1 Invesco, as at 30 Nov 2022.

9S&P 500 Pure Value
Differentiated value exposure with no growth overlap
S&P 500 Value vs. S&P 500 Growth

S&P 500
Value

Overlap29%

StrategicStyle
Assetrotation
Allocation

Pure
FactorTilts

S&P 500 Pure Value vs. S&P 500 Pure Growth - Overlap

S&P 500
Growth

S&P 500
PureValue

S&P 500
Pure
GrowthOverlap
0%

Market Cap Weighted

Factor Weighted

For Illustrative Purposes Only
Source: Bloomberg as of 12/31/2022. The S&P 500 Value & Growth Indexes were launched on May 30, 1992. The S&P 500 Pure Value & Pure Growth Indexes were launched onDecember 16, 2005.
10

S&P 500 Pure Value
Construction and Methodology

PureFactorTilts

Stylerotation

S&P 500(Parent index)

Value Score Metrics

Growth Score Metrics

Book value to price ratio

3-year change in earnings
per share divided by priceper share

Each stock is given a Value and Growth Score

Universe is ranked by the ratio of Value and Growth Scores
Earnings to price ratio

3-year sales per share
growth rate
Only top ranked value stocks are selected

Sales to price ratio

12-month % price change

Value stocks are then weighted by their value score and rebalanced
annually

Source S&P Global. For illustrative purposes only

11Structural performance comparison
Large cap China A share ETFs: 1Y ETF Performance
UCITS ETFs Performance vs. Respective Benchmarks
Past performance does not predict future returns

Regional
Enhanced
Performance

Regional
AccessName

Total
return

CSI300-26.47%

Performancevs Index

Trackingerror

OCF

AUM
($m)

-0.61%

2.61%

0.65%

466

-0.40%

0.03%

0.40%

2,069

2.51%

-0.35%

45

3.0%
2.5%2.0%
1.5%

CSI300 (physical)-26.91%

1.0%
MSCI China A

0.5%-25.41%

0.0%
MSCI China A (physical)-0.5%-25.71%

-1.0%
-1.5%
Dec 21

DB CSI300

S&P China A 300
Mar 22Jun 22

iShares MSCI China A

Sep 22-26.01%

Dec 22

S&P China A 300 swap*

S&P China A 300 swap*(synthetic)-24.15%*S&P China A 300 swap reflects the performance of the 3m swap spread plus basket funding rate less 0.35%
Data: Bloomberg, Goldman Sachs, as at 30 Dec 2022. Data in USD. Funds compared are the largest physical A shares UCITS ETFs per benchmark. Returns may increase or decrease as aresult of currency fluctuations.​

12

Why has this outperformance existed?

Regional
AccessRegional
Enhanced
Performance

Demand is high…

…but supply is limited

Capture the opportunity with synthetic ETFs

• The A-shares market has aextremely liquid cash
market and high retailparticipation• There is no physicalsecurities lending market
offshore for A-shares• Because of this dislocation, banks are looking to take anoffsetting exposure to their index derivative offering• This is an attractive
environment for quant andhedge funds to run market
neutral strategies• Index derivatives provide agood way to hedge theirmarket risk

• There is no broad-based
futures contract on
A-shares offshore• Even for QFII there arequotas for futures contracts
and high costs of borrowing• The only inventory available
is index portfolio• Banks (swap counterparty) can offer attractive levels ofoutperformance (swap pricing) for synthetic ETFs
But will this last?
• Depends on pace of liberalisation in the futures and securities
lending market for offshore investors• Reforms seem slow to progress• At the moment, this is expected to be a persistent trade

Supply/demand imbalance for shorts

Source: Goldman Sachs.

13

How Can You be Part of the EV Story?

EV Manufacturers
TSLA USNIO USRIVN US
600104 CH
etc

CopperTESLA
NIO
RivianSAIC
etc

Aluminum

CaptureThematic
TrendsSectorRotation

Battery Manufacturers
300750 CH
002594 CH
373220 KS
6752 JP
etc

CATL
BYD
LG Energy
Panasonicetc

NickelCobaltCharging Station Manufacturers
CHPT USEVGO USSHEL LN
MBG GYetcLithium

ChargePoint
Evgo
Shell
Mercedes-Benz
etc

Iron Oreand more…
Note: The Index does not have any exposure to the companies listed above
14

Index Rebalance & Reconstitution
S&P GSCI Electric Vehicle Metals Index (SPGEVMU)

Rebalance/Reconstitution Occurs Every January & July:

SectorRotation

CaptureThematic
TrendsReassess Index ConstituentsThe expertise of S&P Global Commodity Insights (S&P GCI) is utilized as a component to determine
the index constituents and production weights:

31Capping
Consideration

ReassessIndex
Constituents➢ S&P GCI EV Metals Usage Data – S&P GCI will draw on market survey, industry trade bodies,
research reports and other internal resources to monitor changes in key EV metals, including theevolving battery; reporting semi-annually➢ Constituents Weights – This is calculated based on S&P GCI’s expected metal usage in a
representative all-electric EV multiplied by the average contract reference price for that constituent

Eligibility Requirements➢ Availability of Daily Contract Reference Prices (typically at least 3 months)➢ Availability of Volume Data to Satisfy Contract Volume & Liquidity Requirements

2EligibilityRequirements➢ Total Dollar Value Trading (TDVT) Requirement – At least US$100 million➢ Constituent Weighting must be at least 1.00%

Capping Considerations/ Methodology
Capping is dynamically determined by the TDVT as follows:➢ At 10% when TDVT is >= US$ 100 million and < US$ 500 million➢ At 15% when TDVT is >= US$ 500 million and < US$ 1 billion➢ At 20% when TDVT is >= US$ 1 billion
15

Thank you
Find us throughETF.APAC@Invesco.com

20230202-2707294-AP

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