Invesco launches ETFs focused on cybersecurity, defense and AI

AI, cybersecurity, and defense: Invesco’s new thematic ETFs: Invesco has launched three new exchange-traded funds (ETFs) focusing on artificial intelligence enablers, cybersecurity, and defense innovation, expanding its thematic investment offerings.

• The new ETFs are designed to capitalize on emerging trends in technology and global security, providing investors with targeted exposure to these sectors.
• Invesco partnered with Kensho, a division of S&P Global Indices, to develop the benchmarks for these ETFs, leveraging Kensho’s expertise in applying AI and other advanced technologies to index construction.

Innovative index construction methodology: Kensho employs a sophisticated approach to identify companies relevant to each theme, combining AI-driven screening with human expertise.

• Natural language processing is used as an initial screen to identify companies potentially exposed to key concepts within each theme.
• Kensho’s analysts then further assess these companies to determine and assign theme exposures.
• Companies are categorized as either “core” or “non-core” based on their level of involvement in the theme, with core companies deriving a significant portion of their business from theme-related products and services.

ETF focus areas and objectives: Each of the new ETFs targets a specific area of technological innovation or security concerns.

• The Artificial Intelligence Enablers ETF focuses on companies developing and enabling AI technology, infrastructure, and services.
• The Cybersecurity ETF invests in companies protecting enterprises and devices from unauthorized electronic access.
• The Defence Innovation ETF offers exposure to companies developing advanced weapons, defensive systems, and border security solutions.

ESG considerations: Invesco has incorporated environmental, social, and governance (ESG) factors into the index construction for two of the ETFs.

• The AI enablers and cybersecurity ETFs apply ESG screens to exclude companies involved in controversial business activities or those non-compliant with UN Global Compact principles.
• Companies with ESG scores in the bottom 10% of the S&P Global BMI Index are also excluded from these two ETFs.

Management perspective: Invesco executives highlight the rationale behind these new offerings and their potential appeal to investors.

• Gary Buxton, head of ETFs for EMEA and APAC, emphasized Kensho’s intelligent approach to applying AI and its expertise in understanding rapidly evolving technologies.
• Buxton also noted the increasing relevance of cybersecurity and defense solutions in response to emerging global threats.
• Chris Mellor, head of ETF equity product management for EMEA, suggested that these ETFs offer unique features that set them apart in the market.

Competitive pricing: Invesco has positioned these new ETFs with a competitive fee structure to attract investor interest.

• Each of the three new ETFs carries an annual charge of 0.35%, making them accessible to a wide range of investors.

Broader implications: Thematic ETFs and evolving investor preferences: The launch of these specialized ETFs reflects a growing trend in the investment industry towards more targeted, thematic investment products.

• As technological advancements and global security concerns continue to shape the economic landscape, investors are seeking ways to gain exposure to these transformative trends.
• The incorporation of ESG considerations in two of the ETFs also underscores the increasing importance of responsible investing criteria in product development.
• While these thematic ETFs offer potential for growth, investors should carefully consider the concentrated nature of such investments and their place within a diversified portfolio.