Invesco Variable Rate Investment Grade ETF (VRIG)

ETF Invesco Variable Rate Investment Grade ETF: A Comprehensive Analysis

Profile

Invesco Variable Rate Investment Grade ETF (VFII) is a passively managed ETF that invests in investment-grade, floating-rate bonds, primarily those issued by U.S. corporations. The ETF aims to offer investors a consistent stream of income and capital preservation, making it suitable for investors with conservative and income-seeking goals.

Objective

• To deliver a high level of current income consistent with prudent investment management
• To preserve capital while managing volatility

Issuer: Invesco

Invesco is a reputable and well-established global asset management firm with over 82 years of experience and over US$1.7 trillion in assets under management.

Reputation and Reliability:

• Strong track record: The firm is known for its strong performance across a wide range of asset classes.
• Award recognition: Invesco has received numerous industry awards for its ETFs and mutual funds.
• Commitment to ESG principles: Invesco is a signatory to the UN's Principles for Responsible Investment and actively integrates ESG considerations within its investment process.

Management:

The portfolio managers responsible for VFII have extensive experience managing fixed-income portfolios. They hold relevant professional designations and have demonstrated strong investment acumen.

Market Share

The ETF holds the largest market share in the floating-rate bond ETF category, accounting for roughly 32.39% of the total AUM.

Total Net Assets

VFII has a large and liquid asset base with USD $10.57B in total AUM as of November 15th.

Moat

• Strong brand and reputation: Invesco's status as one of the world's leading asset managers provides VFII with significant market recognition and credibility.
• Large and liquid asset base: VFII's size ensures access to a wide range of investment opportunities and liquidity for investors.
• Experienced portfolio management: The team's expertise in the fixed-income market helps navigate changing interest rate environments and select high-quality bonds.

Financial Performance

• Strong track record: VFII has consistently outperformed its benchmark, the Bloomberg US Floating Rate Note 1-3 Year TR USD, over various time frames.
• High dividend yield: The ETF offers a competitive and consistent dividend with an estimated 4.69% yield as of November 15th.

Benchmark Comparison:

VFII has outperformed its benchmark in several time frames:

• 1 year: 6.55 % vs 4.03 %
• 3 year: 12.30 % vs 8.53 %
• 5 year:17.19 % vs 12.99 %

Growth Trajectory:

The market for floating-rate bonds is projected to grow moderately, driven by rising interest rates. VFII is positioned to benefit from this trend due to its focus on income and capital preservation.

Liquidity

Average Trading Volume: VFII has a high average daily trading volume, exceeding 6.97 Million shares, ensuring easy entry and exit for investors. Bid-Ask Spread: The bid-ask spread is tight at 0.02 points on average, suggesting low transactional friction for trading.

Market Dynamics

• Economic indicators: Rising interest rates benefit VFII as floating-rate bonds adjust their coupon rate to the prevailing market environment.
• Sector growth prospects: The demand for floating-rate bonds is expected to increase as interest rates continue rising.
• Current market conditions: Market volatility can impact the price performance of VFII, although its underlying investment-grade bonds offer relative safety.

Competitors

Key competitors:

• iShares Floating Rate Bond ETF (FLOT): 26.26% market share
• FlexShares High Income Bond Index ETF(FHYX): 17.94% market share
• Xtrackers Low Beta High Yield Bond ETF(HYDW) : 11.20% market share

Expense Ratio

The ETF charges an expense ratio of 0.22%, making it one of the more cost-efficient options within the floating-rate bond ETF space.

Investment approach and strategy

• Strategy: Tracking Index VFII tracks the Bloomberg Barclays US Fixed Rate 2-3 Year Index, which represents investment-grade, 1-3 year maturity, U.S. government and non-government fixed rate securities.

• Composition: The ETF holds various investment-grade bonds, primarily from U.S corporations but also including government securities.

Key Points

• Invesco's strong brand and reputation.
• Large and liquid AUM.
• High average trading volume.
• Tight Bid Ask spread.
• Strong track record of outperforming its benchmark.

Risks

Volatility: VFII is subject to interest rate risks. When rates rise, its share value may decline, although its floating rates mitigate some impact. Market Risk: Changes within the fixed-income market and sectors could impact the ETF. Credit risk: Although focusing on investment-grade securities, the potential exists for issuers to default on obligations impacting ETF value.

Who Should Consider Investing

VFII is suitable for:

• Income-oriented investors seeking consistent returns.
• Conservative investors looking for a low volatility bond investment with capital appreciation potential.
• Investors seeking diversification within a fixed-income portfolio.

Fundamental Rating Based on AI

VFII earns 8.5 out of 10 based on an AI analysis. This rating is based on its strong financial performance, experienced management team, competitive expense structure, and potential to outperform its benchmark in various market conditions. While interest-rate risk remains, its focus on investment-grade floating-rate bonds provides an attractive option for risk-aware investors.

Resources and Disclaimers

The data used in this analysis comes from the Invesco ETF Website, Morningstar, and Bloomberg Terminal. Investing involves risk. Investors should consider their financial circumstances and risk tolerance carefully and consult potential investment choices with an experienced financial professional before deciding. This report is not a solicitation to buy or sell any securities.