Back to top

Image: Bigstock

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

Read MoreHide Full Article

Designed to provide broad exposure to the Style Box - Large Cap Growth category of the market, the Invesco Defensive Equity ETF is a smart beta exchange traded fund launched on 12/15/2006.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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

Because the fund has amassed over $276.23 million, this makes it one of the average sized ETFs in the Style Box - Large Cap Growth. DEF is managed by Invesco. Before fees and expenses, this particular fund seeks to match the performance of the Guggenheim Defensive Equity Index.

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

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

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

DEF's 12-month trailing dividend yield is 1.48%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 23.80% of the portfolio, the fund has heaviest allocation to the Healthcare sector; Industrials and Consumer Staples round out the top three.

Taking into account individual holdings, Cardinal Health Inc (CAH - Free Report) accounts for about 1.25% of the fund's total assets, followed by Nasdaq Inc (NDAQ - Free Report) and Broadridge Financial Solutions Inc (BR - Free Report) .

Its top 10 holdings account for approximately 11.44% of DEF's total assets under management.

Performance and Risk

The ETF has lost about -6.85% so far this year and is down about -7.51% in the last one year (as of 01/02/2023). In the past 52-week period, it has traded between $60.13 and $72.79.

DEF has a beta of 0.86 and standard deviation of 22.93% for the trailing three-year period, which makes the fund a medium risk choice in the 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 $67.69 billion in assets, Invesco QQQ has $144.71 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.

Published in