An interview with Marty Flanagan, President and Chief Executive Officer, and Greg McGreevey, Senior Managing Director, Investments
"The introduction of self-indexing allows us to be very thoughtful about how we build indexes that enhance the portfolio construction process." - Marty Flanagan, President and Chief Executive Officer
In 2017, Invesco launched Invesco Indexing LLC, a capability focused on producing high quality indexes for Invesco’s clients. In this interview, Marty Flanagan, President and Chief Executive Officer, and Greg McGreevey, Senior Managing Director, Investments, share their vision for Invesco Indexing and how this initiative complements Invesco’s broader goal of delivering an investment experience that helps people get more out of life.
Creating customized indexes is consistent with our efforts over the years in trying to be responsive to client needs. We offer capabilities across the investment continuum, including active, passive and alternatives. And now self-indexing provides us with even more tools and greater flexibility to pursue better outcomes for our clients. It’s the next logical step in work we’ve been doing for the past decade to build our business in ways that help clients achieve their investment objectives.
If you consider the continuum that Marty referenced, self-indexing really expands our capabilities — particularly in the passive arena. We are now able to offer a greater array of needs-based outcomes for our clients within the passive space. Indexes can be customized to meet the needs of clients directly, or they can be utilized as inputs into a more comprehensive outcome-oriented solution.
Indexing also aligns with one of our key priorities — delivering a superior client experience. That experience is based on fully understanding our clients’ needs and then delivering the totality of our investment capabilities to help them achieve their investment goals. In that sense, we believe our index offering will be an excellent fit from a strategic standpoint for the organization.
Those vary, but increasingly the feedback we are getting from clients — especially since the financial crisis — is very specific. Before, a client might have asked, “Do you have a particular local equity capability?” Now, it is more along the lines of, “I have a specific investment objective. Can you help me achieve it?” That means assessing a client’s risk tolerance, time horizon, liquidity needs, and a whole host of other parameters. This is where we believe that custom indexes really add value.
Perhaps the most specific example we have of addressing client needs — although this is somewhat tangential to indexing — is the Rhode Island 529 plan. In that case, the client gave us a specific objective they were trying to achieve based on inflation and rising costs associated with education. Our solutions team built a customized portfolio with a combination of passive and active capabilities. That is a very tangible example of a specific client objective that we were able to accommodate. Indexing is our next addition.
There is really a wide variety of outcomes desired by our clients. Some are as simple as wanting to gain efficient exposure to the market. Through Invesco Indexing, we will be able to provide basic products that accomplish that. Some clients will have much more customized needs — for example, the need for tax advantages in rebalancing portfolios. Custom indexing affords our Product Development and Global Solutions teams the ability to address specific needs, while allowing our PowerShares ETF team to collaborate with the internal self-indexing group in a more dynamic way.
To some extent, but not exclusively. As a firm, we believe in producing client outcomes by holistically embracing both active and passive solutions. That ranges from market-cap-weighted indexes to factor-based and smart beta strategies to high-conviction active management and alternatives. Our plan is to leverage the firm’s full range of investment capabilities. Indexing allows us to better incorporate all of these capabilities in client portfolios. We see this as a natural extension of the skill sets that are necessary to meet our clients’ needs in a more precise way.
And we expect this to evolve naturally. The product line started with simple equity market-cap or equal-weighted indexes. From this foundation, we’ll be able to build other more nuanced products, including factor-based indexes and indexes in other asset classes, such as fixed income and commodities. Ultimately, we plan to have an array of different indexing products — both standard and customized — that will tie into the varying needs of our diverse client base. And we’re really excited about that opportunity.
These are indexes by investors for investors. The unique position that we are in is that Invesco is a firm of investors, so we already have the intellectual capability. Invesco has had quantitative teams for decades, so this is not a new idea, nor is it a new skill set. What we are really doing is taking existing knowledge and experience and expressing it in a different way.
We are creating these indexes with clients in mind using direct client feedback. Traditional index providers are not money managers, and some may not have the kind of meaningful contact with clients on investment-related topics that we do. They are somewhat disadvantaged from that perspective. This is where we as an asset manager have a great competitive advantage when it comes to meeting client needs.
No, I think it’s simply a natural progression of the inherent skills that we already have within the organization. Over the decades, we have built out this breadth of capabilities — including portfolio construction capabilities by our Global Solutions team — in response to clients wanting us to be more specific in meeting their objectives. The introduction of self-indexing allows us to be very thoughtful in how we build indexes that enhance the portfolio construction process. You can’t do that by relying solely on third-party index providers that may not be connected to clients in the same way. We are dealing directly with clients. We have their input, which is a key difference from other providers. Direct access to clients, combined with a strong investment culture, really enables us to create something unique for our clients.
Definitely. That’s our plan. We view everything through a global lens, and our indexing business will be no different. The investment ideas represented in the indexes themselves will be global in nature. They’ll be based on the expertise of our investment professionals across the world.
Right now we’re seeing quite a bit of interest in index-based products around the world, especially in Europe and Asia. Early in 2017, we made a strategic acquisition of Source, a leading ETF provider in Europe, specifically to be able to expand our global capabilities and better meet client needs. Now, we have the opportunity to leverage Invesco Indexing to contribute to the growth of our fund business in both Europe and Asia.
The information provided is for informational purposes only and should not be construed as an offer to buy or sell any financial instruments, or a recommendation for any security or fund interest. Invesco Indexing LLC is not an investment adviser or fiduciary and makes no representation regarding the advisability of investing in any security or strategy. There can be no assurance that an investment strategy based on the Invesco Indexes will be successful.
Indexes are unmanaged and it is not possible to invest directly in an index. Exposure to an asset class or trading strategy represented by an index is only available through investable instruments (if any) based on that index. Invesco Indexing LLC does not issue, sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, derivative or other security, financial product or trading strategy that is based on, linked to or seeks to track the performance of any Invesco Indexing LLC.
Invesco Indexing LLC is a wholly owned, indirect subsidiary of Invesco Ltd.