Download A team approach to Multi Asset investing

Invesco Global Targeted Returns Fund
A team approach to Multi Asset investing
This marketing document is exclusively for use by Professional Clients and Financial Advisers in Continental Europe
and Qualified Investors in Switzerland. This document is not for consumer use, please do not redistribute.
The Invesco Multi Asset team’s investment philosophy is to simply invest
in good, long-term macro investment ideas. It does not worry about
asset classes or bucketing ideas by types of investments, but researches
good, long-term macro themes and seeks the best way to gain exposure
to them.
For example, what is the best way to represent a view on US monetary policy? What is the best
way to implement a view on policy intervention in Japan? The team has the freedom to roam
freely across asset types and geographies to seek investment ideas which are appropriate for its
two- to three-year investment horizon.
The team has the
freedom to roam freely
across asset types and
geographies to seek
investment ideas which
are appropriate for its
two- to three-year
investment horizon.
The team is not constrained by having to hold a particular asset type
The team calls this process an ‘unconstrained approach’ to research meaning they are not
constrained by having to hold a particular asset type at any point in time. This is important for a
multi asset fund to ensure that diversification can consistently be achieved throughout the cycle.
Ideas for the fund are generated from a number of sources. All the team members have a solid
fundamental macro background and view the world from a macro perspective, this is enhanced
by regular conversations with a number of external research providers, such as investment banks
and other research boutiques.
Internally, Invesco Ltd’s Chief Economist John Greenwood is another source of macro ideas and
conversations with colleagues across the Henley investment centre and the broader Invesco
group provide another rich source of investment ideas, which the team incorporates into its
research process.
Once an idea starts to take form, the team put it through a four-step research process, which is
called TEAM. This is the first stage of the team’s three-stepped investment process and comes
before the fund management and implementation stages.
“There are three fund managers in the Multi Asset team in Henley and this is very important –
running a multi-asset fund is not a one person job. Dave Jubb, Richard Batty and I look after the
fund together and we are not only a team in name,” said Head of Multi Asset and Fund Manager,
David Millar. “Each idea must pass through what we call the TEAM research process before we
will put it into our portfolio.”
The first part of the process, the T, is identifying a long-term macro Theme and then defining
and articulating it, so what is the theme that underpins the team’s belief that an idea will deliver
a positive return over their two- to three-year investment horizon?
The team then moves on to the second part of the process, the E is identifying the Economic
and macro backdrop to help us understand how an idea may perform in the portfolio, so what
are the economic drivers for the idea. Is the idea driven by economic growth differentials across
countries, or perhaps different monetary policy approaches by central banks?
The A in TEAM stands for Analytics, which refers to the valuation metrics employed by the
team. We build models and we look at valuations and seek to identify valuation opportunities
between or within particular markets.
Finally, the M is for Managers, which reflects the constant interaction that the team has with
colleagues around the firm. The Multi Asset team has free access to all of their colleagues in
Henley and the broader Invesco group. So, if there is an equity idea, the team will discuss it with
their equity colleagues, a bond idea will trigger a conversation with the Fixed Interest investment
team. For every idea, the team will know the views of their colleagues.
1
Invesco Global Targeted Returns Fund
A team approach to Multi Asset investing
“This TEAM approach is not just a catchy marketing term but forms the basis of the research
notes for each idea, so when an idea is proposed by a team member, the four sections of theme,
economics, analytics and manager input need to be filled out before it is debated with the rest of
the team, “ said Millar.
Example: Currency idea Chilean peso – Australian dollar
Here, we illustrate this approach using one of the team’s currency ideas, which pairs a long
position in the Chilean peso with a short position in the Australian dollar, we can look at this
process in practice.
The ‘theme’ is that the team favours the Chilean peso against the Australian dollar. The team
likes the improving fundamentals of the Chilean economy and believes these contrast with the
Australian economy, which is still struggling to re-balance away from the dominant commodities
sector.
Looking at the ‘economics’ behind the idea, there are a number of supportive factors. Chilean
fundamentals look stronger than Australia’s when looking at GDP, recent moves in current
account deficit and economic activity. Chile’s GDP has been on the rise for the past year or so
and economic surprises have been positive in Chile recently and even when negative have been
stronger than in Australia. The current account deficit has notably improved from -4% of GDP in
2013 to around -2% of GDP at the end of March 2016, which has been helped by the peso’s
weakness.
On the Australian side, the economy is still struggling to cope with the fall-out from the end
of the commodity super-cycle and inflation surprises have mostly been negative over the last
5 years. In addition, the current account deficit has worsened to -5% of GDP.
These differing outlooks are also reflected in the relative central bank policies. Chile’s central
bank most recently raised rates to combat a small rise in inflation and have indicated a
willingness to do this with or without the US Federal Reserve. At the same time, the Reserve
Bank of Australia most recently cut rates to a record low of 1.5% at the beginning of August,
which even now looks high globally.
Moving to analytics, the Chilean peso is a measurably cheaper currency (15% by the BEER*
measure) and 8% cheap by the REER* measure when adjustments to terms of trade are taken
into account while the Australian dollar is 11% expensive. In addition, the carry differential is very
supportive, currently over 2% per annum, and this could increase if the path of the relative
interest rates continues to diverge.
When setting up the
fund at Invesco, it was
vital for us to address
the concerns of clients
and try to make our
investment process and
resultant portfolio as
transparent as possible.
And finally, the team turns to other fund managers around the business, so the ‘M’ in team. In
this instance, one was an emerging equities fund manager, who believes Chile is certainly one
of the best stories in Latin America with improving fundamentals. He also noted that the Chilean
peso had already taken a ‘big hit’. Another was a fund manager from Invesco Fixed Income,
who’s view on the Australian dollar was that it was still expensive.
“When setting up the fund at Invesco, it was vital for us to address the concerns of clients and try
to make our investment process and resultant portfolio as transparent as possible. We are aware
that advisers need to be able to explain the investment ideas in our portfolio to their clients and
set out to make this job as easy as possible,” said David Millar.
While the team may use some relatively complex instruments to implement their investment
ideas, the thinking behind them remains very simple. Sticking rigorously to the four-step TEAM
process provides the framework for the team to approve ideas going into the portfolio but also
helps ensure that the team and clients can articulate the ideas.
*BEER = B
ehavioural equilibrium
exchange rate
*REER = Real effective exchange rate
2
Invesco Global Targeted Returns Fund
A team approach to Multi Asset investing
Invesco Perpetual Global Targeted Returns Fund
Investment Process
Step 1
Research
Thematic “T“
Economic “E”
Analytic “A”
Managers “M”
Initial
justification for
the idea – why
it should work
in our central
economic
scenario
Economic and
corporate
drivers that
should make
the idea work
Valuation
metrics –
industry
standard and
propietary –
to assess each
idea
The views of
Invesco asset
class specialists
when assessing
potential ideas
Multi Asset
team
Invesco Chief
Economist
CIO challenge
process
Henley-based
fund managers
Invesco fund
managers
External
research calls
Inputs
Approving ideas
Step 2
Fund
management
Risk
Scenarios
Structure
Liquidity
Combining ideas
Step 3
Implementation
Order
Comply
Execute
Implementing ideas
Review
Review and
oversight
For illustrative purposes only. Source: Invesco.
Main risks
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. Debt instruments are exposed to credit risk which is the ability of the
borrower to repay the interest and capital on the redemption date. 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.
Important information
This marketing document is exclusively for use by Professional Clients and Financial Advisers in Continental Europe
and Qualified Investors in Switzerland. This document is not for consumer use, please do not redistribute. Data as at
31 August 2016, unless otherwise stated.
This advertisement is by way of information only. Where Invesco has expressed views and opinions, these may change. No
investment advice or recommendation is being offered or provided by Invesco. A decision to invest in shares of a fund must
be based on the most up to date legal offering documents. 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, the
latest Prospectus, and constituent documents. This information is available in local language in hardcopy and free of charge
using the contact details of the issuer or on www.invescoeurope.com.
Denmark: The fund is not registered for public distribution in this jurisdiction. This document is provided only at the request
of a Professional Client or qualified investor and is intended for the sole use of this person. Issued in Austria by Invesco Asset
Management Österreich GmbH, Rotenturmstrasse 16–18, A-1010 Vienna; in Germany by Invesco Asset Management
Deutschland GmbH, An der Welle 5, D–60322 Frankfurt am Main; and in Switzerland by Invesco Asset Management
(Schweiz) AG, Talacker 34, CH–8001 Zurich, who acts as representative for the fund distributed in Switzerland. Paying agent
for the fund distributed in Switzerland: BNP PARIBAS SECURITIES SERVICES, Paris, succursale de Zurich, Selnaustrasse 16,
CH–8002 Zurich. This fund is domiciled in Luxembourg.
[CE1759/082016]
3
Invesco Global Targeted Returns Fund
A team approach to Multi Asset investing