Invesco Perpetual Fixed Interest

Transcription

1 Invesco Perpetual Fixed Interest June 2018 Lewis Aubrey-Johnson Head of Fixed Income Products This document is for Professional Clients only and is not for consumer use.

2 Key points Large disparity between US and European government bond yields Credit spreads have widened a little, more so in Europe and in financials We are defensive in duration and cautious in credit We have added a small amount of credit risk following the weakness 2

3 US data showing no signs of a slowdown Source: Macrobond as at 31 May

4 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Index Index Eurozone Q1 slowdown, recent bounce in UK Eurozone PMIs UK PMIs Services Manufacturing Composite Services Manufacturing Composite Source: Macrobond as at 1 May

5 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Citi Economic Surprise Index Large gap between US and Eurozone Citi Economic Surprise Index - Eurozone Eurozone - United States, rhs Source: Bloomberg, Macrobond as at 5 June

6 European yields unchanged, US yields higher 10-year government bond yields (%) Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 US Germany UK Source: Macrobond as at 4 June

7 Difference between bund yield and US treasury yield highest on record Source: Macrobond as at 31 May

8 European spreads wider, US spreads unchanged Source: Macrobond as at 31 May

9 AT1 spreads noticeably wider since January Source: Macrobond as at 31 May

10 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 Invesco Perpetual Corporate Bond Fund Modified duration and credit exposure Apr 17 Apr Liquidity Cash Bonds maturing within 1 year * Government ** Defensive Investment grade Covered and senior banks Credit risk Peripheral government Subordinated banks Subordinated insurers Corporate high yield Modified duration Hybrids & convertibles Source: Bloomberg, Invesco Perpetual. Data to 30 April Excludes derivatives and therefore may add to more or less than 100%. *Bonds with less than a year to maturity are excluded from other categories to prevent double counting. **Government includes agency & supranational. Figures may not sum due to rounding. 10

11 Invesco Perpetual Corporate Bond Fund Sources of yield Portfolio weight 1 (%) Average yield 2 (%) Financials - Relatively high yield - Secular banking recovery - Limited duration risk Bank subordinated debt Old (T1) Old (T2) AT1 and T2 Cocos Insurance subordinated debt Corporates - Attractive yield pick-up for capital structure risk of hybrids - Lower risk high yield portfolio - US$ for yield, diversification & liquidity Hybrid High yield US$ non financial Source: Invesco Perpetual as at 30 April Excludes bonds with less than one year to maturity or three months to call. 2 Weighted average yield. 3 US$ denominated non-financial corporate bonds, excluding high yield. 11

12 Invesco Perpetual Monthly Income Plus Fund Current investment themes (%) Apr 17 Apr 18 Liquidity Cash Bonds maturing within 1 year * Government ** Defensive Investment grade Covered and senior banks Credit risk Peripheral government Subordinated banks Subordinated insurers Corporate high yield Hybrids & convertibles Equities Source: Invesco Perpetual as at 30 April Excludes derivatives and therefore may add to more or less than 100%. *Bonds with less than a year to maturity are excluded from other categories to prevent double counting. **Government includes agency & supranational. Figures may not sum due to rounding. 12

13 Invesco Perpetual Monthly Income Plus Fund Sources of yield Portfolio weight (%) 1 Average yield (%) 2 Financials - Relatively high yield - Secular banking recovery - Limited duration risk Bank subordinated debt Legacy T1 and T AT1 and T2 Cocos Insurance subordinated debt Corporates - Attractive yield pick-up for capital structure risk of hybrids - Broadly diversified high yield portfolio Equities - Relative value and income diversification Hybrids High yield Source: Invesco Perpetual as at 30 April Excludes bonds with less than one year to maturity or three months to call. 2 Weighted average yield. 3 High yield corporate bonds, excluding emerging markets and distressed bonds. 13

14 Invesco Perpetual Distribution Fund Current investment themes (%) Apr 17 Apr 18 Liquidity Cash Bonds maturing within 1 year * Government ** Defensive Investment grade Covered and senior banks Credit risk Peripheral government Subordinated banks Subordinated insurers Corporate high yield (inc. EM) Hybrids & convertibles Equities Source: Invesco Perpetual as at 30 April Excludes derivatives and therefore may add to more or less than 100%. *Bonds with less than a year to maturity are excluded from other categories to prevent double counting. **Government includes agency & supranational. Figures may not sum due to rounding. 14

15 Invesco Perpetual Distribution Fund Sources of yield Portfolio weight (%) 1 Average yield (%) 2 Financials - Relatively high yield - Secular banking recovery - Limited duration risk Bank subordinated debt Legacy T1 and T AT1 and T2 Cocos Insurance subordinated debt Corporates - Attractive yield pick-up for capital structure risk of hybrids - Broadly diversified high yield portfolio Equities - Relative value and income diversification Hybrids High yield Source: Invesco Perpetual as at 30 April Excludes bonds with less than one year to maturity or three months to call. 2 Weighted average yield. 3 High yield corporate bonds, excluding emerging markets and distressed bonds. 15

16 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 Invesco Perpetual Tactical Bond Fund Modified duration and credit exposure Apr 17 Apr Liquidity Cash Bonds maturing within 1 year * Government ** Defensive Investment grade Covered and senior banks Credit risk Peripheral government Subordinated banks Subordinated insurers Corporate high yield Modified duration Hybrids and convertibles Emerging markets Source: Bloomberg, Invesco Perpetual. Data to 30 April Excludes derivatives and therefore may add to more or less than 100%. *Bonds with less than a year to maturity are excluded from other categories to prevent double counting. **Government includes agency & supranational. Figures may not sum due to rounding. 16

17 Fund yields & duration Fund Distribution yield (%) Underlying yield (%) Modified duration IP Corporate Bond Fund IP Monthly Income Plus Fund IP Distribution Fund IP Tactical Bond Fund Source: Invesco Perpetual as at 31 May Yields quoted are for the Z Accumulation share class, yields on other share classes may differ. Please see Important information for the yields disclosure. 17

18 Investment 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. The securities that the Invesco Perpetual Corporate Bond, Monthly Income Plus, Distribution and Tactical Bond funds invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity for the securities in which the funds invests, may mean that the funds may not be able to sell those securities at their true value. These risks increase where the Invesco Perpetual Corporate Bond, Monthly Income Plus, Distribution and Tactical Bond funds invests in high yield or lower credit quality bonds and where we use derivatives. The Invesco Perpetual Corporate Bond, Monthly Income Plus and Distribution funds have the ability to make use of financial derivatives (complex instruments) which may result in the funds being leveraged and can result in large fluctuations in the value of the funds. Leverage on certain types of transactions including derivatives may impair the funds liquidity, cause them to liquidate positions at unfavourable times or otherwise cause the funds not to achieve their intended objectives. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the funds being exposed to a greater loss than the initial investment. The Invesco Perpetual Tactical Bond Fund has the ability to make significant use of financial derivatives (complex instruments) which may result in the fund being leveraged and can result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment. The Invesco Perpetual Corporate Bond, Monthly Income Plus, Distribution and Tactical Bond funds may be exposed to counterparty risk should an entity with which the funds do business becomes insolvent resulting in financial loss. As the Invesco Perpetual Tactical Bond Fund can rapidly change its holdings across the fixed income and debt spectrum and cash, this can increase its risk profile. The Invesco Perpetual Corporate Bond, Monthly Income Plus, Distribution and Tactical Bond funds may invest in contingent convertible bonds which may result in significant risk of capital loss based on certain trigger events. Changes in interest rates will result in fluctuations in the value of the Invesco Perpetual Corporate Bond, Monthly Income Plus, Distribution and Tactical Bond funds. 18

19 Important information This document is for Professional Clients only and is not for consumer use. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities. Past performance is not a guide to future returns. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The yields shown are expressed as % per annum of current NAV of the funds. They are estimates for the next 12 months, assuming that the fund s portfolio remains unchanged and there are no defaults or deferrals of coupon payments or capital repayments. They are not guaranteed and investors may be subject to tax on distributions. They do not reflect the entry charge of the funds. For the Invesco Perpetual Corporate Bond and Tactical Bond funds they are shown net of the ongoing charge. Cash income is estimated coupons from bonds and, where applicable, estimated dividends from equities. The distribution yield estimates the cash distribution to the shareholders: in addition to expected cash income, it includes the amortised annual value of unrealised capital gains/losses of current bond holdings, calculated with reference to their historic purchase price and expected redemption value (known as effective yield from purchase price method). For the Invesco Perpetual Corporate Bond and Tactical Bond funds, the distribution yield is the same as the underlying yield. For the Invesco Perpetual Distribution and Monthly Income Plus funds the distribution yield is gross of the ongoing charge, which is charged to capital. The underlying yield is calculated in the same way as the distribution yield, but is always net of the ongoing charge. The underlying yield for the Invesco Perpetual Distribution and Monthly Income Plus funds are, therefore, lower than the distribution yield by the amount of the ongoing charge. Where, in the Manager s judgement, there is significant uncertainty that a bond holding will be redeemed at par, the amortised capital component for that holding is retained in the fund s capital and not distributed. This has the effect of reducing the estimated redemption, distribution and underlying yields and the actual distribution rate. For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the Annual or Interim Reports and the Prospectus, which are available using the contact details shown Invesco Perpetual is a business name of Invesco Fund Managers Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority. 19