The new Invesco Global Targeted Returns Fund

Transcription

1 The new Invesco Global Targeted Returns Fund This fund has been launched recently and this marketing document has been prepared at the time of the fund launch. The fund and its shares are currently in the process of the registrations for public distribution in targeted Continental European countries. This marketing document is only suitable for use with professional clients in the countries where registration of all the shares mentioned has already been made, or based on an existing private placement exemption locally. For information on fund registrations, please refer to the appropriate internet site or your local Invesco office. This marketing document is exclusively for use by Professional Clients in Continental Europe and is not for consumer use. Please do not redistribute this document.

2 The growth of multi asset investing A recurring theme over recent years has been the challenge of constructing portfolios that not only combine genuine diversification with controlled levels of volatility, but that also deliver alpha. This background has led to a growing demand for multi asset strategies which can offer genuine diversification, help spread the overall risk of investing and provide the potential for positive, longterm returns. This is why we have developed a multi asset capability. Invesco Perpetual s new Multi Asset investment team, with its extensive experience and proven capability to develop and implement risk-managed portfolios, fits neatly into the Invesco investment culture with its focus on fundamental, research driven investing. Multi asset investing is not a new concept, but with such a wide array of investment techniques now available, we believe it s time for a fresh look at conventional approaches to asset allocation. 02 Invesco Global Targeted Returns Fund

3 The Invesco Global Targeted Returns Fund Invesco has always believed that great ideas drive investment performance. That is why we have given the Invesco Perpetual Multi Asset team absolute freedom to invest anywhere in the world and with no asset class constraints. We believe our new Invesco Global Targeted Returns Fund reflects Invesco s traditional virtues of strength and stability, and has the potential to play a valuable role in investors portfolios. Who might the Invesco Global Targeted Returns Fund appeal to? The portfolio construction and instruments used for the Invesco Global Targeted Returns Fund are sophisticated, but the core proposition is simply a blend of good investment ideas, brought together in a risk-managed portfolio. This fund might appeal to your clients if they are: looking for medium-term investment growth seeking less volatility relative to a typical equity investment willing to accept the use of complex investment techniques and instruments Positioning the fund within your clients portfolios The flexibility and diversification benefits of the fund mean it could be positioned in a number of ways within investors portfolios. With a target volatility lower than that of global equities over a 3 year rolling period, the fund could help to maximise opportunities for diversification and may help lower the risk profile of investors portfolios. This fund will not appeal to your clients if they: are looking for income have a low tolerance to risk have a short-term investment horizon are unwilling to accept the use of complex investment techniques and instruments Core The fund can be positioned as the core holding or foundation of an investor s strategy, providing access to a wide range of markets and assets, and combining diversification with flexibility. Sitting at the heart of a client s portfolio, it may provide stability for more specialised and often more volatile satellite holdings. Satellite As a satellite holding, the fund, which aims to generate alpha, can be used to complement a bespoke portfolio, offering diversification to highly correlated core assets, or acting as a dampener for more risky holdings elsewhere in the portfolio. 03 Invesco Global Targeted Returns Fund

4 The value of great investment ideas At Invesco, the Multi Asset investment team believes that the only way to achieve true diversification is to break away from the focus on asset class constraints. Instead, the team focuses on great investment ideas, identifies the best way to invest in them and then combines them into a riskmanaged portfolio. Introducing our new fund The new Invesco Global Targeted Returns Fund explores fundamental long-term themes and ideas that will work alongside each other in a risk-managed portfolio. The fund aims to achieve a positive total return in all market conditions over a rolling 3 year period. The fund targets a gross return of 5% p.a. above 3 month EURIBOR (or an equivalent reference rate) and aims to achieve this with less than half the volatility of global equities, over the same rolling 3 year period. 1 What the fund invests in The Multi Asset team considers a wide array of asset classes, geographies, sectors and currencies, to identify what they consider to be the most attractive investment ideas. The team doesn t mind which asset class an idea belongs to, what matters is the impact on risk and reward that each idea has on the portfolio. Potential returns are based upon an underlying central economic thesis each idea has to have the potential to deliver positive returns in the fund manager s central economic thesis. The fund has the ability to invest in a broad range of financial instruments, including derivatives. The combination of traditional assets and derivatives helps the fund managers to build a highly diversified portfolio; the use of a wider range of investment approaches can help remove as many constraints as possible in the pursuit of real diversification. The fund will have a minimum of 5 individual investment ideas from a minimum of 3 different asset types and will invest around 60% of assets under management in eligible funds from both Invesco Perpetual and the wider Invesco group. The remaining 40% will be invested in cash or near cash instruments as cover for derivatives exposure. Cash or near-cash Funds 1 Please note there is no guarantee this gross performance target or volatility target will be achieved. 04 Invesco Global Targeted Returns Fund

5 Derivatives The fund makes significant use of derivatives and other financially linked instruments as they can help the investment team to: Manage risk add and remove risk from the portfolio efficiently through highly liquid derivative markets Modify exposure to an asset, market or sector where it may assist the fund in achieving its target return Minimise costs transaction costs tend to be lower than for the underlying asset to which the derivative relates Generate additional capital or income Leverage The use of derivatives enables the team to set the fund s exposure to asset classes above its fund value and therefore increase the return potential of the fund. While leverage also increases the risk profile of the fund, it is important to note that generally the fund will not borrow cash in pursuit of its investment objectives. Counterparty risk To reduce counterparty risk, the fund managers use collateral management, whereby cash, or collateral, is posted on open positions in order to cover these trades and, in effect, ring fence that cash, should the counterparty fall into difficulty. The only way to achieve true diversification is to break away from the focus on asset class constraints. David Millar, Head of Multi Asset, Invesco Perpetual Types of assets Equities Government bonds Corporate bonds Real estate Collective investment schemes Volatility instruments Inflation products Currencies Commodities For illustrative purposes only. 05 Invesco Global Targeted Returns Fund

6 Investment philosophy and approach At Invesco we believe that at the heart of every successful investment is a great idea. But having an idea isn t enough every idea in the fund must pass the team s rigorous three-step investment, as shown below, before earning a place in the portfolio, and must have the potential to deliver a positive return on a two to three year horizon. Once it has earned its place, it will be tested again and again. Source: Invesco as at 31 December 20. For illustrative purposes only. Step 1 Researching and approving ideas By using the TEAM investment process, the Multi Asset team considers the merits and risks associated with each idea and gathers input from in-house fund managers to determine the best way to represent the idea in the portfolio. Thematic The first stage of the research process is the justification for the idea and the reasons why and how it should work in our central economic scenario. The team then looks at which asset class(es) and instruments should be used to best express the theme, along with both the upside and downside return expectations. Economic The team then identifies the wider economic and macro trends that should make the idea work, or which could pose a threat. Fiscal and monetary policy, corporate cash-flow and profitability, are all researched to assess possible economic risks to the idea. Analytic Each idea is then subject to rigorous testing using both industry standard and proprietary modelling and valuation techniques. Supply and demand levels for the assets are examined, along with investor positioning and current sentiment towards the assets to identify any potential risks. Stress testing helps ensure the fund s robustness across a range of potential outcomes. Managers The team has ready access to the views of Invesco and Invesco Perpetual asset class specialists and investment teams globally. This enables them to obtain perspectives from the people who are best placed and have the expertise to make sound judgements on the idea. Step 1 Research Thematic T Economic E Analytic A Managers M Approving ideas Step 2 Fund Management Volatility Structure Scenarios Liquidity Combining ideas Step 3 Implementation Order Comply Execute Review Implementing ideas Review and Oversight 06 Invesco Global Targeted Returns Fund

7 Step 2 Risk-based fund management, combining investment ideas Every idea must earn its place in the portfolio by contributing the right blend of risk and return. Each idea will be examined not only to assess how volatile it is in isolation, but also how it impacts on the overall volatility of the fund. There may be an idea which, at an independent level, has a high level of risk, but which, when added to the portfolio, significantly reduces the overall risk through diversification. By combining the ideas, the team can construct a fund where the overall risk is reduced through diversification. Each idea must pass four tests: Volatility How much independent risk does each idea pose and how does that offset other risks within the fund? The team analyses the fund by idea, asset type, geographic exposure and risk characteristics. Structure Each trade will be structured efficiently, whether using cash instruments, futures, options or funds, to give the team pinpoint exposure to the idea. Scenarios The team tests each idea against its core economic thesis; the whole portfolio is then stress tested and subject to scenario analysis to see how it could perform under different market conditions. Liquidity This is vital to limit risk. Only daily priced instruments are used to support daily access and scale, and liquid derivatives are used and collateralised daily to minimise counterparty exposure. Step 3 Dealing and governance, implementing investment ideas The implementation of each investment idea then goes through four phases: order, comply, execute and review. Each order goes onto our trading platform and is subject to pre- and post-trade compliance checks. The team utilises the global trading desk which operates nine desks in seven countries, and has extended specialist alternative and FX trading capabilities in the UK and US. The review process is a critical part of the implementation phase. The fund is subject to daily risk analysis by the Multi Asset team and also subject to review by our Independent Risk Function. Review and oversight The fund managers are free to operate independently, but also have clear accountability within a challenge environment. They are aided by a strong oversight and risk management process with a regular schedule of meetings. Weekly the Multi Asset and dealing teams meet weekly to review risk positions, implement investment ideas and monitor fund performance. Monthly together with Invesco Perpetual Chief Investment Officer (CIO) Nick Mustoe and other investment teams, the Multi Asset team meets to share investment views and themes, define the central economic thesis against which every idea is measured, assess new investment ideas and revisit existing ideas. Quarterly every trade and all changes to general investment ideas are reviewed by the Multi Asset team, the CIO, the Head of Investment Oversight and the heads of the investment teams on a quarterly basis. An independent governance meeting reviews overall risk and compliance. Combining ideas helps reduce total fund risk Total independent risk 20.8% Total fund risk 4.8% 25 Annually on an annual basis, the team meets with the CIO and Head of Investment Oversight where it will be subject to challenge and review of both the investment ideas and the portfolio risk. Diversification benefit 50% of global equity risk Independent risk Fund risk 0 Source: Invesco 31 December 20. For illustrative purposes only. 07 Invesco Global Targeted Returns Fund

8 Ideas illustrated Each idea is constructed based upon its own valuation and fundamental attributes and can be implemented through a range of asset classes, including access to the alpha capabilities of the Invesco Perpetual and Invesco fund managers. The fund is built on a range of innovative ideas, two examples of which are illustrated here. Yield comparison (%) Diversified alpha IMA Sterling Strategic Bond sector yield 1 Global equities dividend yield Global corporate bond yield, 1 10yr Global Financials corporate bond yield, 1 10yr 5-year Treasury bond yield Source: Bloomberg, 31 December 20 1 Source: Lipper as at 31 December 20. Average of all sector funds. Rate of return based on the income distributions in the past 12 months The search for yield The search for yield continues, driven by government bond yields which remain incredibly low globally. This is forcing investors to look at other asset classes to achieve the returns that they desire. The theme here is that in a world of low growth, low interest rates and low inflation, the team believe it makes sense to have some yield exposure within a portfolio. As government bond yields are currently low, they need to look elsewhere for attractive yield levels. The economics suggest that ongoing global growth risks continue to pressure corporate profitability, so the team search for yield in areas where they believe the yield will be honoured and paid, and therefore want to avoid moving too far up the risk spectrum. This leads them to seek selective exposure to yield across both corporate bonds and equities. The Multi Asset team can gain access via an in-house fund which sits within the IMA Sterling Strategic Bond sector, where the fund managers generate their diversified alpha by selecting attractive yield opportunities within both corporate bonds and equities. This should give the team what it considers to be the right exposure to companies at the right place in the capital structure Invesco Global Targeted Returns Fund

9 Interest rates UK versus Germany For this idea, the team opened a position that is long UK, 10-year gilts versus German 10-year bunds through bond futures. The theme being expressed is the belief that gilts have priced in a much more robust economic recovery in the UK than in Germany, where the risk premium priced into bunds is too high for the eurozone outcome that the team expects. A robust UK recovery priced into the UK 10-year gilt versus German 10-year bund UK 10-year Gilt yield German 10-year Bunds yield Source: Thomson Datastream, 16 December 20 From an economic backdrop, the immediate UK economic outlook is expected to be robust relative to Germany, however, the team expects this growth gap to close sharply in At the same time, inflation is set to moderate in the UK while Germany s is set to rise. The team is not questioning the robustness of short-term economic data in the UK but believes there are some structural rigidities in the economy, which make a lasting strong recovery less likely. These include: limited credit availability, high general leverage and, in addition, an extended housing market is increasing sensitivity to interest rates. In contrast, the German economy is relatively under levered and while the economy has already slowed, it is set to accelerate as it benefits from recovery in the region. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Analytical research shows that UK 10-year gilts have typically traded 50 basis points (bps) over bunds in the low inflation era since Over that same time period, the current spread of circa 100bps is approximately a 90th percentile event: the spread between bunds and gilts have only been as wide as the current spread for 10% of occurrences in the low inflation era since In addition, despite sentiment regarding the eurozone slowly improving, bund yields have remained relatively low but look more vulnerable to a back-up in AAA yields as the global recovery continues or indeed US tapering begins. The carry on the trade is also supportive Current spread The team also considered the input of fellow Invesco fund managers. Notably, European equity colleagues were worried about the risk of US tapering impacting bund yields negatively in relation to investments in stocks with bond-like characteristics such as utilities. In addition, on the fixed income side, the team discovered this was an idea that had been explored and, in the short term, Q4 was traditionally very strong for gilts on a seasonal basis Invesco Global Targeted Returns Fund

10 Actively managed and supported by global experts Invesco Perpetual s Multi Asset investment team The Multi Asset team has a wealth of experience in the successful development, implementation and ongoing management of multi asset portfolios. The three fund managers have a combined total of 15 years experience in delivering targeted absolute return products and, collectively, have over 60 years investment experience. Alongside the fund managers, two further investment specialists each bring with them considerable investment expertise and a proven capability to support a multi asset investment approach. Global resource This core team has access to a rich source of like-minded investment thinkers. It can draw upon the extensive in-house intellectual capability, research and analysis, and investment expertise, from Invesco teams worldwide. This opens the fund to a wide range of opportunities, allowing it to target specific ideas and themes with the benefit of in-depth expertise. Together they bring a blend of actuarial, economic, fixed interest, risk management and multi asset skills to Invesco. From left to right Richard Batty Fund Manager, Multi Asset Gwilym Satchell Risk Manager, Multi Asset Georgina Taylor Product Director, Multi Asset David Millar Head of Multi Asset Dave Jubb Fund Manager, Multi Asset 10 Invesco Global Targeted Returns Fund

11 Why consider choosing Invesco? Invesco Perpetual is one of the largest independent fund managers in the UK. Our investment approach is rooted in the view that there are no short cuts to longterm investment success. The Multi Asset team sits alongside fellow like-minded fundamental investment thinkers, with ready access to their intellectual capability and focus on achieving the objectives of the funds they manage. Central to the Invesco approach is a belief in active fund management; building portfolios based on thorough research and analysis to identify the investment opportunities they consider most likely to provide strong, long-term returns. We are part of Invesco Ltd., a leading independent global investment manager, committed to helping investors achieve their financial objectives. We have more than 740 dedicated investment professional operating in over 20 countries. 3 By delivering the combined power of our distinctive global investment management capabilities, Invesco provides a wide range of investment strategies and products to our clients and investors around the world. The ability to come and work amongst some of the foremost high-conviction fundamental thinkers in the investment market is quite frankly a privilege David Millar, Head of Multi Asset, Invesco Perpetual Why consider investing in the Invesco Global Targeted Returns Fund? The last few years have clearly demonstrated the need for investors to consider the longer-term consequences of changing market dynamics and gain access to a broader range of asset classes in order to position their portfolios for the future. Changes to advice models and the pensions landscape, together with increasing customer demand for capital growth at acceptable levels of risk, all contribute to the need for products which offer the benefits of diversification and risk reduction. There are several reasons to consider choosing the Invesco Global Targeted Returns Fund. Targets a positive return in all market conditions Whatever the market environment, the team aims to achieve a target gross return of 5% p.a. above 3 month EURIBOR (or an equivalent reference rate) over a rolling 3 year period. 4 Highly diversified and risk managed The combination of a range of ideas, using both traditional assets and derivatives, enables the Multi Asset team to construct a portfolio that reduces risk through real diversification. Each idea is extensively researched, stress-tested, analysed and reviewed to see how it performs under different economic conditions and to assess its effect on overall risk and volatility. Realistic time horizons We believe that the ideas reflected in the fund, based on a continuous three-year view, provide the potential for the fund to achieve its objective. Accessible As a daily priced fund, shares can be bought, sold or switched on any UK business day. The right people and approach Invesco Perpetual s Multi Asset investment team has a wealth of experience and proven capability in running multi asset funds. We believe that great ideas drive investment performance, and through their rigorous investment approach, the multi asset team ensures that every idea in the fund has earned its place in the portfolio. 3 Data as at 31 December Please note there is no guarantee this gross performance target or volatility target will be achieved. 11 Invesco Global Targeted Returns Fund

12 Find out more To find out more about the Invesco Global Targeted Returns Fund and how it may help you to meet your clients objectives, please contact us using the details below. Amsterdam Telephone Brussels Telephone Frankfurt Telephone Madrid Telephone Milan Telephone Paris Telephone Stockholm Telephone Vienna Telephone Zurich Telephone Telephone calls may be recorded. Important information This marketing document is exclusively for use by Professional Clients in Continental Europe and is not for consumer use. Data as at , unless otherwise stated. Please do not redistribute this document. The fund s shares are not currently registered for sale in all the targeted Continental European countries as per the data of production of this marketing information, specifically not in Denmark and Greece. As a consequence, the unregistered fund s shares may not be offered or distributed by way of public advertisement or public offer in these jurisdictions. The unregistered fund s shares may only be offered and the legal offering documents (Key Investor Information Documents, prospectus, periodical reports) and marketing materials of the fund may only be distributed in these jurisdictions without public solicitation and in compliance with the private placement rules set forth in the laws, rules and regulations of the jurisdiction concerned. Please contact your local Invesco office for full details of the fund registration status in your jurisdiction. The distribution and the offering of the fund in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. The fund will invest in derivatives (complex instruments) which will be significantly leveraged resulting in large fluctuations in the value of the fund. The fund may hold debt instruments which are of lower credit quality and may result in large fluctuations of the value of the fund. The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management. Past performance is not a guide to future returns. Where Invesco has expressed views and opinions, these may change. The information provided on the investments and investment strategy (including current investment themes, the research and investment process, and portfolio characteristics, weightings, and allocation) represents the views of the portfolio manager at the time this material was completed, and is subject to change without notice. For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents, the latest Annual or Interim Reports and the latest Prospectus, and constituent documents. This information is available using the contact details of the issuer and is without charge. Further information on our products is available using the contact details shown. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. This document is not an invitation to subscribe for shares in the fund and is by way of information only. As with all investments, there are associated risks. The fund is available only in jurisdictions where its promotion and sale is permitted. Not all share classes of this fund may be available for public sale in all jurisdictions and not all share classes are the same nor do they necessarily suit every investor. There may be differences in fee structures, in minimum investment amounts, etc. Please check the most recent version of the fund prospectus in relation to the criteria for the individual share classes. This marketing document is issued in: Austria by Invesco Asset Management Österreich GmbH, Rotenturmstraße 16 18, A 1010 Wien Germany by Invesco Asset Management Deutschland GmbH, An der Welle 5, 1st Floor, D Frankfurt am Main, which is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht in Germany Switzerland by Invesco Asset Management (Schweiz) AG, Stockerstrasse 14, CH-8002 Zürich, who acts as a representative for the funds distributed in Switzerland. Paying agent for the fund distributed in Switzerland: BNP PARIBAS SECURITIES SERVICES, Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zürich. CE144/55257/030314