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Should Invesco Defensive Equity ETF (DEF) Be on Your Investing Radar?

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Launched on 12/15/2006, the Invesco Defensive Equity ETF is a passively managed exchange traded fund designed to provide a broad exposure to the Large Cap Growth segment of the US equity market.

The fund is sponsored by Invesco. It has amassed assets over $279.69 million, making it one of the average sized ETFs attempting to match the Large Cap Growth segment of the US equity market.

Why Large Cap Growth

Large cap companies usually have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also have higher valuations. Further, growth stocks have a higher level of volatility associated with them. Even though growth stocks are more likely to outperform their value counterparts in strong bull markets, value stocks have a record of delivering better returns in almost all markets than growth stocks.

Costs

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 counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.55%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.26%.

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 to the Information Technology sector--about 27% of the portfolio. Healthcare and Industrials round out the top three.

Looking at individual holdings, Ebay Inc (EBAY - Free Report) accounts for about 1.25% of total assets, followed by Tractor Supply Co (TSCO - Free Report) and Synopsys Inc (SNPS - Free Report) .

The top 10 holdings account for about 11.54% of total assets under management.

Performance and Risk

DEF seeks to match the performance of the Guggenheim Defensive Equity Index before fees and expenses. The Guggenheim Defensive Equity Index is comprised of approximately 100 stocks selected from the S&P 500 Index based on investment and other screening criteria. The companies selected have potentially superior risk-return profiles during periods of stock market weakness while still offering the potential for gains during periods of market strength.

The ETF has lost about -7.90% so far this year and is down about -0.98% in the last one year (as of 06/19/2020). In the past 52-week period, it has traded between $37.36 and $58.86.

The ETF has a beta of 0.86 and standard deviation of 21.20% for the trailing three-year period, making it a medium risk choice in the space. With about 103 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco Defensive Equity ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, DEF is an excellent option for investors seeking exposure to the Style Box - Large Cap Growth segment of the market. There are other additional ETFs in the space that investors could consider as well.

The Vanguard Growth ETF (VUG - Free Report) and the Invesco QQQ (QQQ - Free Report) track a similar index. While Vanguard Growth ETF has $54.89 billion in assets, Invesco QQQ has $115.08 billion. VUG has an expense ratio of 0.04% and QQQ charges 0.20%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

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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