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Is Invesco Defensive Equity ETF (DEF) a Strong ETF Right Now?

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The Invesco Defensive Equity ETF made its debut on 12/15/2006, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Growth category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Managed by Invesco, DEF has amassed assets over $267.84 million, making it one of the average sized ETFs in the Style Box - Large Cap Growth. This particular fund seeks to match the performance of the Guggenheim Defensive Equity Index before fees and expenses.

The Invesco Defensive Equity Index is designed to provide exposure to securities of large-cap US issuers.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for DEF are 0.55%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.18%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector - about 22.60% of the portfolio. Industrials and Consumer Staples round out the top three.

When you look at individual holdings, Hershey Co/the (HSY - Free Report) accounts for about 1.09% of the fund's total assets, followed by Monster Beverage Corp (MNST - Free Report) and Church & Dwight Co Inc (CHD - Free Report) .

The top 10 holdings account for about 10.76% of total assets under management.

Performance and Risk

The ETF has lost about -8.94% so far this year and is down about -3.96% in the last one year (as of 08/31/2022). In the past 52-week period, it has traded between $60.64 and $73.11.

The fund has a beta of 0.84 and standard deviation of 22.14% for the trailing three-year period, which makes DEF a medium risk choice in this particular space. With about 101 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco Defensive Equity ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Growth ETF (VUG - Free Report) tracks CRSP U.S. Large Cap Growth Index and the Invesco QQQ (QQQ - Free Report) tracks NASDAQ-100 Index. Vanguard Growth ETF has $73.82 billion in assets, Invesco QQQ has $165.98 billion. VUG has an expense ratio of 0.04% and QQQ charges 0.20%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Growth.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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