Invesco launches risk-rated funds ahead of RDR

The Invesco Perpetual Balanced Risk 6, 8 and 10 funds will target an average volatility of 6 per cent, 8 per cent and 10 per cent respectively, through exposure to equities, bonds and commodity futures.

They will be managed by Invesco chief investment officer Scott Wolle based in Atlanta, Georgia, with the support of his Invesco global asset allocation team.

The nomenclature used by Invesco for its range, which is more cautious in nature, differs from that used by other providers of risk-rated funds. 6, 8 and 10 are relatively risky numbers in the terms deployed by Skandia on its Spectrum range, as well as other risk-rated fund providers.

Invesco’s 6, 8 and 10 figures also differ from the risk number which funds must include on their new prospectuses under the EU’s Ucits IV directive.

The Balanced Risk portfolios will gain exposure to six groups of equities – the S&P 500, Russell 2000, FTSE 100, EuroStoxx 50, Topix and Hang Seng indices; six groups of developed world government bonds, issued by Australia, Canada, Germany, Japan, the UK and the US; and four groups of commodity futures, linked to agriculture, copper, crude oil and gold.

“We seek to build portfolios by gaining exposure to low correlation assets that can offer diversification in every economic environment,” Mr Wolle said.

The asset allocation will remain broadly stable, although the management team will aim to generate 15-20 per cent of the funds’ returns through tactical calls.

The maximum gross exposures of the funds to their target markets will be unusually high for retail vehicles – 2.5 times clients’ assets in Balanced Risk 6, three times in 8 and 3.5 times in 10. To achieve this, the funds would have to post assets as collateral against derivative positions with larger exposures.

A similar combination of the S&P 500, Barclays Treasury and S&P Goldman Sachs Commodity indices would not have returned more than 2.9 percentage points less or 18.83 percentage points more than cash over any three-year period from July 1973 to December 2008, according to Invesco.

However, in the event of a deflationary bust in the “safe haven” government bonds owned by the funds, all the funds’ assets could theoretically go down in tandem, particularly if the funds’ gross exposures to the markets remain high.

The funds will sit in the IMA Specialist sector and charge a 1.25 per cent annual management fee.