significantly from
the value of the Fund’s underlying holdings, with the result that investors may
pay significantly more or receive significantly less than the underlying value
of the Shares bought or sold. This can be reflected as a spread between the bid
and ask prices for the Fund quoted during the day or a premium or discount in
the closing price from the Fund’s NAV. Additionally, APs may be less willing to
create or redeem the Shares if there is a lack of an active market for such
Shares or the Fund’s underlying investments, which may contribute to the Shares
trading at a premium or discount.
Non-Principal
Investment Strategies
The Fund, after
investing at least 90% of its total assets in securities that comprise the
Underlying Index, may invest its remaining assets in securities (including other
funds) not included in the Underlying Index, and in money market instruments,
including repurchase agreements and other funds, including affiliated funds,
that invest exclusively in money market instruments (subject to applicable
limitations under the 1940 Act, or exemptions therefrom), convertible
securities, structured notes (notes on which the amount of principal repayment
and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in
futures contracts, options, options on futures contracts or other derivatives.
The Fund may use futures contracts, options, options on futures contracts,
convertible securities and structured notes to seek performance that corresponds
to the Underlying Index, and to manage cash flows. The Adviser anticipates that
it may take approximately two business days (a business day is any day that the
New York Stock Exchange (“NYSE”) is open) for additions to and deletions from
the Underlying Index to fully settle in the portfolio composition of the
Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest, under
normal circumstances, at least 80% of the value of its net assets (plus the
amount of any borrowing for investment purposes) in the particular types of
securities, and/or in securities of companies operating in the particular
industries or economic sectors, that are suggested by the Fund’s name (the “80%
investment policy”). The Fund considers the securities suggested by its name to
be those securities that comprise the Underlying Index. Therefore, the Fund
anticipates meeting its 80% investment policy because it already generally
invests at least 90% of its total assets in securities that comprise the
Underlying Index, in accordance with its principal investment
strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded
Fund Trust II (the “Trust”) may change without shareholder approval upon 60
days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in the Fund’s
Statement of Additional Information (“SAI”) under the section “Investment
Restrictions.”
Borrowing
Money
The Fund may borrow
money up to the limits set forth in the Fund’s SAI under the section “Investment
Restrictions.”
Securities
Lending
The Fund may lend
its portfolio securities to brokers, dealers, and other financial institutions.
In connection with such loans, the Fund receives liquid collateral equal to at
least 102% (105% for international securities) of the value of the loaned
portfolio securities. This collateral is marked-to-market on a daily
basis.
Additional
Risks of Investing in the Fund
The Fund may also
be subject to certain other non-principal risks associated with its investments
and investment strategies. The following provides additional non-principal risk
information regarding investing in the Fund.
Cash
Transaction Risk. The Fund
generally expects to make in-kind redemptions to avoid being taxed at the fund
level on gains on the distributed portfolio securities. However, from time to
time, the Fund reserves the right to effect redemptions for cash, rather than
in-kind. In
such circumstances,
the Fund may be required to sell portfolio securities to obtain the cash needed
to distribute redemption proceeds. Therefore, the Fund may recognize a capital
gain on these sales that might not have been incurred if the Fund had made a
redemption in-kind. This may decrease the tax efficiency of the Fund compared to
utilizing an in-kind redemption process.
Convertible
Securities Risk. A convertible
security generally is a preferred stock that may be converted within a specified
period of time into common stock. Convertible securities nevertheless remain
subject to the risks of both debt securities and equity securities. As with
other equity securities, the value of a convertible security tends to increase
as the price of the underlying stock goes up, and to decrease as the price of
the underlying stock goes down. Declining common stock values therefore also may
cause the value of the Fund’s investments to decline. Like a debt security, a
convertible security provides a fixed-income stream and also tends to decrease
in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks
as lower-rated debt securities, which are considered to have more speculative
characteristics and greater susceptibility to default or decline in market value
than investment grade (or higher-rated) securities.
Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund, like all companies, may be susceptible to operational, information
security and related risks. Cybersecurity incidents involving the Fund and its
service providers (including, without limitation, the Adviser, fund accountant,
custodian, transfer agent and financial intermediaries) have the ability to
cause disruptions and impact business operations, potentially resulting in
financial losses, impediments to trading, the inability of Fund shareholders to
transact business, violations of applicable privacy and other laws, regulatory
fines, penalties, reputational damage, reimbursement or other compensation
costs, and/or additional compliance costs. Similar adverse consequences could
result from cybersecurity incidents affecting issuers of securities in which the
Fund invests, counterparties with which the Fund engages, governmental and other
regulatory authorities, exchanges and other financial market operators, banks,
brokers, dealers, insurance companies, other financial institutions and other
parties. The Fund and its shareholders could be negatively impacted as a
result.
Derivatives
Risk.
The Fund may invest in derivatives, such as futures contracts, options, and
options on futures contracts, as applicable. Derivatives are financial
instruments that derive their value from an underlying asset, such as a
security, index or exchange rate. Their use is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Derivatives may be riskier than
other types of investments and may be more volatile, less tax efficient and less
liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset or to hedge a
portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the
change in value of a derivative may not correlate as expected with the
underlying asset being hedged, and it is possible that the hedge therefore may
not succeed. In addition, given their complexity, derivatives may be difficult
to value.
Derivatives
are subject to a number of risks including credit risk, interest rate risk,
and market risk. Credit risk refers to the possibility that a counterparty will
be unable and/or unwilling to perform under the agreement. Interest rate risk
refers to fluctuations in the value of an asset resulting from changes in the
general level of interest rates. Over-the-counter derivatives are also subject
to counterparty risk (sometimes referred to as “default risk”), which is the
risk that the other party to the contract will not fulfill its contractual
obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the
portfolio of the Fund to be more volatile than if the portfolio had not been
leveraged because leverage can exaggerate the