Invesco RAFI Strategic US ETF tops $1 billion in assets

The Invesco RAFI Strategic US ETF (IUS) passed $1 billion in assets under management this month, ETF Trends reported on Oct. 28. The fund launched in September 2018.

IUS tracks the Invesco Strategic US Index, which sorts U.S. stocks in two passes. The first assigns each eligible company a business-size score: a five-year, equally weighted average of sales, operating cash flow, total return of capital and book value. Real estate companies are scored on funds from operations and total assets in place of operating cash flow and book value. Companies ranking in the top 90% by that measure advance. The second pass keeps the top 80% of those names by a quality score that blends the prior year's sales-to-assets ratio with the five-year percentage change in that ratio. Holdings are then weighted by float-adjusted business-size score, and the index reconstitutes once a year.

For advisors building a core U.S. sleeve, IUS now offers a fund with $1 billion in assets whose weights follow sales and book value rather than price. The weighting rule implies a smaller share in the largest technology names than a cap-weighted benchmark carries, though that follows from how the index is built rather than from any stated position. Timing matters as much as the weights: because the index resets once a year, holdings drift with prices between reconstitutions, and any pull back toward business size happens at the next reset rather than continuously.

Ari Polychronopoulos, head of RAFI Indices, said during a TMX VettaFi webcast that the Magnificent Seven has grown to nearly 35% of the S&P 500, with a combined market capitalization above $20 trillion. A fund weighted by business size rather than market value will hold less of those seven names than the S&P 500 does, which is the exposure an allocator accepts or offsets when pairing the two.

Between resets, the portfolio's largest positions can grow past their business-size target exactly as they would in any price-weighted portfolio, and the annual reconstitution is the only point at which that drift is corrected.