Invesco portfolio endures volatile third quarter
Recent market volatility has provided a testing ground for the Invesco Perpetual Global Targeted Returns fund, according to its product director, Georgina Taylor.
Ms Taylor acknowledged the market upheaval in the third quarter had been “an important test for a fund like this”.
“It has been an incredibly interesting time for markets,” she said.
The £4bn portfolio aims to achieve a positive return in all market conditions across a rolling three-year period, targeting a gross annual return of 5 per cent above the UK three-month Libor rate, with less than half the volatility of global equities. It uses derivatives to play off credit, equity, rates and currency views.
Equity markets went into overdrive during August and subsequently spilled into September when, in spite of a late boost, the majority of global markets sunk back.
Confidence in the strength of the global recovery was hit by China, as data continued to suggest its economy was cooling after an extended period of rapid growth, while the US Federal Reserve held off on tightening monetary policy.
Ms Taylor said the central bank’s decision to keep its interest rate on hold saw “some riskier assets struggle”, which detracted from the fund’s credit ideas in September.
However, its weekly volatility at the end of the month was at 4 per cent since inception, compared with 11.2 per cent for global equities.
While market expectations were now pointing to a rate rise in December or next year, Ms Taylor said the starting point for them was not so much about “when” monetary policy tightened, but “where interest rates can get to”. She added “there is no fuel” for an aggressive rise at present.
Looking ahead, the director noted: “Longer-term structural growth rates will remain subdued and the cyclical European recovery is challenged by China’s slowdown. We do not see inflation coming through in any significant way.”
In spite of the third-quarter turmoil, the Invesco fund – which is headed up by lead manager David Millar – remained in positive territory. It returned 1 per cent, while the MSCI World index lost 5 per cent, data from FE Analytics shows.
Ms Taylor said: “It has been a difficult year to invest in as a lot of different themes are driving markets.”
In September, the team reviewed its Australian short rates idea and felt the return potential had been diminished and did not justify a standalone place in the portfolio.
“As a result, we moved our position to a longer-dated part of the Australian interest rate curve and combined the view into our Australia versus Europe interest rates idea, increasing its sensitivity to changes,” she said.
Ms Taylor also noted the team’s preference for US large-cap stocks to US small caps had boosted performance.
