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Is Invesco Defensive Equity ETF (DEF) a Strong ETF Right Now?

Zacks Equity Research
·4-min read

The Invesco Defensive Equity ETF (DEF) was launched on 12/15/2006, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Growth category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

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Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Invesco. It has amassed assets over $246.36 million, making it one of the average sized ETFs in the Style Box - Large Cap Growth. Before fees and expenses, this particular fund seeks to match the performance of the Guggenheim Defensive Equity Index.

The Invesco Defensive Equity Index is designed to provide exposure to securities of large-cap US issuers.

Cost & Other Expenses

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 cousins, other things remaining the same.

Annual operating expenses for this ETF are 0.55%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.22%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

DEF's heaviest allocation is in the Healthcare sector, which is about 22.60% of the portfolio. Its Industrials and Consumer Staples round out the top three.

When you look at individual holdings, Lockheed Martin Corp (LMT) accounts for about 1.37% of the fund's total assets, followed by Archer-Daniels-Midland Co (ADM) and Northrop Grumman Corp (NOC).

The top 10 holdings account for about 12.64% of total assets under management.

Performance and Risk

The ETF has lost about -12.13% so far this year and is down about -2.25% in the last one year (as of 07/01/2022). In the past 52-week period, it has traded between $60.64 and $73.11.

The fund has a beta of 0.85 and standard deviation of 22.14% for the trailing three-year period, which makes DEF a medium risk choice in this particular space. With about 103 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco Defensive Equity ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Growth ETF (VUG) tracks CRSP U.S. Large Cap Growth Index and the Invesco QQQ (QQQ) tracks NASDAQ-100 Index. Vanguard Growth ETF has $66.45 billion in assets, Invesco QQQ has $152.91 billion. VUG has an expense ratio of 0.04% and QQQ charges 0.20%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Growth.

Bottom Line

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
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
Invesco QQQ (QQQ): ETF Research Reports
 
Vanguard Growth ETF (VUG): ETF Research Reports
 
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