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

Zacks Equity Research

The Invesco Defensive Equity ETF (DEF) was launched on 12/15/2006, and is a passively managed exchange traded fund designed to offer broad exposure to the Large Cap Growth segment of the US equity market.

The fund is sponsored by Invesco. It has amassed assets over $240.03 M, 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

Companies that find themselves in the large cap category typically 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. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don't perform as strongly in almost all other financial environments.

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 0.59%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.17%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Financials sector--about 20% of the portfolio. Healthcare and Information Technology round out the top three.

Looking at individual holdings, Hasbro Inc (HAS) accounts for about 1.14% of total assets, followed by Fiserv Inc (FISV) and Fidelity National Information Services Inc (FIS).

The top 10 holdings account for about 10.8% 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 added roughly 18.48% so far this year and it's up approximately 8.03% in the last one year (as of 08/08/2019). In the past 52-week period, it has traded between $41.71 and $54.17.

The ETF has a beta of 0.77 and standard deviation of 11.05% for the trailing three-year period, making it a medium risk choice in the space. With about 100 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 a great 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 iShares Russell 1000 Growth ETF (IWF) and the Invesco QQQ (QQQ) track a similar index. While iShares Russell 1000 Growth ETF has $44.10 B in assets, Invesco QQQ has $69.78 B. IWF has an expense ratio of 0.19% and QQQ charges 0.20%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also 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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Invesco Defensive Equity ETF (DEF): ETF Research Reports
 
iShares Russell 1000 Growth ETF (IWF): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
Hasbro, Inc. (HAS) : Free Stock Analysis Report
 
Fiserv, Inc. (FISV) : Free Stock Analysis Report
 
Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report
 
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