Nick Kalivas, Head of Factor & Equity ETF Strategy at Invesco, joins Remy Blaire to discuss the current state of the markets, particularly in light of the recent 90-day tariffs reprieve and the ongoing U.S.-China trade framework discussions. Nick emphasizes the importance of defensive positioning, highlighting the use of defensive ETFs, specifically those focused on quality and low volatility.
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The markets are capitalizing on a 90 day tariff reprieve.
In that time, investors have also received some positive news.
A US-China trade framework is in the works, although still pending, along with tame inflation numbers in the US.
But with the 90 day tariffs pause ending on July 8th uncertainty lingers under the surface.
Well, joining us this morning to break all of this down is Nick Kalyvas, who's the head of factor and equity ETF strategy at Invesco.
So Nick, good morning.
Thank you so much for joining me.
When it comes to market risk, that is something that we are all keeping our eyes on.
So are you really defensively positioned right now?
And if so, what does that look like?
Yeah, so we've been talking a lot about using defensive ETFs, factor ETFs, to be specific.
So factors such as quality or low volatility are solutions for clients to essentially gain equity exposure and kind of ride out all the uncertainty.
So we have the Invesco S&P 500 quality ETF, the SPHQ, and the Invesco S&P 500 low volatility ETF SPLV as ways to kind of manage all the craziness that's going on in the world today.
And when it comes to the US economy, Americans are eyeing higher borrowing costs, lower economic growth, as well as potential higher tariff-induced prices, not to mention uncertainty regarding the TCJA.
So what are you seeing when it comes to client activity?
So we are seeing a lot of client interest in terms of trying to a position themselves defensively.
So we've seen very good flow in our quality ETF.
We also see a lot of investors moving to where the profit growth is in the market.
So we're seeing interest in growth strategies and Strategies where there's strong earnings potential.
So we're seeing actually if we shifted a little bit from defensive, we see investors interested in momentum as a strategy, for example.
So our Invesco S&P 500 momentum ETF SPMO has seen a lot of client interest, and the reason for that is that it's been able to kind of pick up the Stocks that are working in an environment where profit growth is questionable and it has been revised down in some areas, and there's a lot of uncertainty that has been present in the in the landscape.
So momentum has also been a place where investors have flocked to to kind of help them navigate what has been a very difficult market.
Yeah, and Nick, you keep mentioning the word uncertainty, so what should investors expect when they trade in a defensive sector, especially based on risk tolerance?
Yeah, so defensive stocks like defensive ETFs, if I take our SPHQ or SPLV for example, what they're essentially designed to do is provide a smoother ride for the investors.
So they're not going to participate fully when the market rips higher, but when the market sells off, they're going to sell off less.
And so what they do is essentially allow investors to kind of win.
And generate performance through playing defense.
It's kind of that old sports adage.
The best defense, best offense is a good defense.
And so that's one of the mechanisms that defensive factors really present to investors.
I would say when you look at the companies, if you tear off kind of the top ticker and look at the actual holdings, what you're going to find that these companies have more stable businesses.
They tend to be lower volatility type of businesses.
They tend to be businesses that generate a high level of profits, and so they can really give investors some some comfort.
And I think in these kind of uncertain trying times where there's a lot of headline risk, a lot of things that could keep you up at night, they really allow you to stay invested and you know we've done some work here.
You know, if you miss kind of the best 1020 days of the year it really can cut your return down over longer periods of time by, you know, by as much as maybe 200 basis points over a long period.
So it's important to kind of stay invested.
Markets are notoriously difficult to time.
It's hard to know what happens overnight when you're sleeping.
And so these defensive factors like SPHQ or SPLV can kind of just help keep you in the market and more comfortable with your with your investment portfolio.
And finally, before I let you go, hard to believe, but we will be kicking off the month of July next week.
So tell us about 2025 defensive factor returns so far.
So they've actually had a very good year.
So they've been outperforming the S&P 500 by about 150 basis points, and they've really helped investors kind of weather the sharp sell-off we had in April and kind of keep pace with the gains that we have seen kind of since then.
So the performance is very robust, and I think investors have been pleased with it and really what they have.
Done is kind of avoided areas of trouble, so they've had either no exposure or smaller exposure, and they've been able to latch on to some of the stocks.
They've been able to kind of weather the storm well, whether it's some, you know, some communication services if you're looking at SPHQ or something like defensive financials and more slow moving industrials if you're SPLV.
OK, Nick, well, we will have to leave it there, but thank you so much for joining us this morning and thank you for sharing your insights.
Been a pleasure.
Thank you.