Investment risks
For complete information on risks, refer to the legal documents.
The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.
The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.
The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults.
Equal Weight: a common sense approach
Equal Weight exposures have been enjoying a resurgence amid growing investor interest in equity strategies that offer diversification and help reduce concentration risk. The volatility that shook markets in 2024 shined a light on the high valuations of mega-cap US tech stocks in particular, but it also served as a reminder of the potential benefits of an equal weight approach. This common-sense alternative to traditional market-cap weighting is now also available for broad European and World equity exposures via Invesco UCITS ETFs.
Equal Weighted indices are designed to provide exposure to the same constituents as their parent market-cap-weighted indices, but they equally weight each company at each rebalancing date, typically on a quarterly schedule. This process effectively removes the influence of the constituents’ current prices using a rules-based, automated process of selling high and buying low.
Equal Weight versus Market Cap
A standard index such as MSCI Europe or MSCI World weights the constituents by size, with the result being that the largest companies contribute more to the index performance than smaller companies. For example, the top 10 stocks comprise 21% of MSCI Europe and 25% of MSCI World in terms of their market capitalisation despite being tiny fractions of the number of stocks comprising those market-cap-weighted indicesi. That concentration can be an advantage in a highly momentum-driven market when the largest stocks are performing well but can pose a significant risk in volatile or falling markets.
Combating this concentration risk is where an equal-weight approach can provide a simple solution. At each rebalance, stocks that have outperformed the index are reduced and those that underperformed are increased, so that all stocks in the index again have the same weight.
Increased exposure to smaller companies
The MSCI Europe Index includes more than 400 stocks, while MSCI World has around 1,400. Equal weight investors in either index gain more exposure to the smaller stocks, which often have different growth drivers than the mega-cap names at the top of the standard index. Smaller sized companies have historically driven higher growth over the long term, although tend to have higher volatility in shorter time periods.
More balanced exposure geographically and across sectors
The differences in geographical and sector exposures are also worth noting. For instance, while the US comprises over 70% of the standard MSCI World index, it’s only around 40% of the equal-weight variant. Japan receives the largest uplift with an allocation of around 15% compared to 5.8% in the standard index. In fact, investors gain more exposure to all other markets through an equal weight approach. In general, MSCI Equal Weighted Indices offer a more balanced exposure from both the geographic and sector perspectives.
Footnote
i Source: Bloomberg, as at 31 December 2024
Investment risks
For complete information on risks, refer to the legal documents.
The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.
The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.
The use of a representative sampling approach will result in the Fund holding a smaller number of securities than are in the underlying index. As a result, an adverse development to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of the securities in the underlying index.
The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults.
Important information
Data as at 7 March 2025 unless otherwise stated. This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change. For information on our funds and the relevant risks, refer to the Key Information Documents/Key Investor Information Documents (local languages) and Prospectus (English, French, German), and the financial reports, available from www.invesco.eu. A summary of investor rights is available in English from www.invescomanagementcompany.ie. The management company may terminate marketing arrangements. UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them. For the full objectives and investment policy please consult the current prospectus.
The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI Inc. ("MSCI"), and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The prospectus contains a more detailed description of the limited relationship MSCI has with Invesco and any related funds.
Issued by Invesco Investment Management Limited, Ground Floor, 2 Cumberland Place, Fenian Street, Dublin 2, Ireland. Regulated by the Central Bank in Ireland.
EMEA4281297/2025
