The Invesco portfolio management team responsible for a $105 million rebalancing blunder has been replaced at the $6 billion Invesco Equal Weight S&P 500 fund (VADDX).
Invesco declined to comment on the July removal of Anthony Munchak, Glen Murphy, Francis Orlando and Daniel Tsai, but a prospectus update shows the fund is now being managed by Peter Hubbard, Michael Jeanette and Tony Seisser.
As InvestmentNews was first to report in May, a botched quarterly rebalancing caused the mutual fund to lag the index it tracks by more than 170 basis points during the last week of April.
“This was a costly error on the portfolio management team’s part,” said Morningstar analyst Ben Johnson.
“The team running the fund at the time of the error overlooked the fact that the rebalancing of the equally-weighted index had been separated from that of the cap-weighted index,” he added. “This was the first time this had been done. The team relied on localized versions of the firm’s portfolio and risk management systems. It is clear that the version they were using wasn’t calibrated in the same way as the version employed by the team responsible for the Invesco S&P 500 Equal Weight ETF (RSP), which rebalanced its portfolio on time.”
The rebalancing, which normally takes place on the last Friday of the quarter, was delayed due to the extreme stock market volatility in March, including a 30% drop from a February high.
An 8-K filing on May 6 showed that Invesco acknowledged the index tracking error and stated, “The company will make a contribution to the Funds of approximately $105 million to compensate them for the performance difference that arose from market movements between April 24 and April 29.”
The trio taking over management of the mutual fund is also responsible for the Invesco S&P 500 Equal Weight (RSP), a $12.6 billion exchange-traded fund that came to Invesco as part of the 2018 acquisition of Guggenheim Investments’ ETF business.
The mutual fund and ETF track the same index.
“Normally when you see wholesale portfolio manager changes there is reason to be concerned, but that’s not the case here,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.
“Portfolio managers do matter, but the fact that the new managers are applying the same rule book to equal weight the S&P 500 means it’s not a big deal when the index fund portfolio manager changes,” he added. “Rule number one when you’re tracking an index is to track the index.”
The mutual fund’s former management team had been running the index fund since 2010, and there is no evidence that any of them have left Invesco. Three of the four PMs are still listed as managers on multiple funds.
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