Tumble in technology shares drags Invesco ETF down
Big falls in the share prices of leading US technology companies since the beginning of the year have led to a difficult start to 2016 for the passive fund business of Invesco, the Atlanta-based asset manager.
Invesco’s PowerShares business is the world’s fourth-largest ETF provider, with assets of $101bn, but the performance of its index-tracking arm is often overshadowed by its three larger rivals: BlackRock, Vanguard and State Street Global Advisors.
In January, investors pulled just over $2bn from the Invesco PowerShares ETF known as QQQ. It tracks an index of the 100 largest stocks listed on the Nasdaq stock market.
The ETF is Invesco’s biggest fund and also one of the largest ETFs globally, with assets of $37.8bn, according to ETFGI, a consultancy. It is widely followed as a barometer of investor sentiment towards the technology sector.
Concerns about high valuations and a deteriorating outlook for earnings have weighed on the share prices of tech companies including Alphabet, Google’s parent company, Apple, and Netflix.
This has dragged the Nasdaq 100 index down almost 14 per cent since the start of 2016 and prompted some investors to pull money from the Invesco ETF.
“Selling by a small, concentrated group of investors has been responsible for the withdrawals from QQQ,” said Dan Draper, global head of ETFs at Invesco PowerShares.
Mr Draper added that outflows from QQQ had been offset by inflows into smart-beta products, a more sophisticated form of ETF. Invesco expects continued investor demand in this area.
The decline in the Nasdaq index this year has encouraged some investors to raise their bets on a quick rebound for the technology sector.
ProShares, a Maryland-based asset manager, has experienced inflows of $364m in January into its triple leveraged ETF. This delivers a multiple of three times the daily return of the Nasdaq 100 index.
US regulators are considering whether to limit the amount of leverage asset managers can offer via ETFs. The higher volatility of these funds can magnify losses and US regulators have repeatedly warned these vehicles are not suitable for retail investors.