Invesco Perpetual Global Targeted Returns Fund Investing in ideas

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1 Invesco Perpetual Global Targeted Returns Fund Investing in ideas July 2018 This document is for Professional Clients only and is not for consumer use. The Invesco Perpetual Multi Asset team seeks diversification by investing in what they believe to be good, long-term macro investment ideas. It has an unconstrained approach to sourcing investment ideas and can search across asset types and geographies for investment opportunities. The team is not obliged to hold a specific asset class or mix of asset classes at any time and believes that each of the ideas in its portfolio can provide a positive return over a two- to three-year time horizon. This document provides a summary of the ideas in the portfolio as at 30 June 2018 and reflects changes made during the second quarter of Portfolio changes during the second quarter of 2018 The team added no new ideas to the portfolio but two were removed: Interest Rates Italy vs Europe (fundamental change in Italian outlook) Currency Russian Ruble vs US Dollar (announcement of US sanctions enhanced political risk) The implementation of three ideas changed significantly: Equity European Divergence (removed preference for French vs German equities) Equity Selective Asia (portion of beta exposure expressed through options linked to Chinese equities) Interest Rates Yield Compression (removed European leg)

2 Commodity Commodity Carry This idea aims to take advantage of the shape of the forward price commodity curve. The price of a physical commodity in the future tends to be higher than spot due to physical costs like transport, insurance and storage. The marginal costs, however, diminish as you go further out in time. We used total return swap indices to extract the premium that this dynamic can present across a basket of commodities. Short We believe commodity prices will remain under pressure as global growth continues its stuttering progress. The team implemented this idea using a total return swap index, which systematically seeks to take advantage of the shape of the commodity curve. This structure inherently reflects a slightly negative outlook on commodities, which was further enhanced by selling an additional total return swap index. So, we still expect to extract a premium in a flat market, however, returns may be enhanced if commodity prices fall. Finally, we added a long position on a global energy stock index as we believe energy stocks appear attractive and could also help cushion this idea in the event of a commodity market rally. Credit Selective Credit Though the risks for lower quality credit have risen, particularly in Europe, we see selective value in high yield and investment grade credit over our two- to three-year time horizon. We gained exposure to this by reflecting the strategy of the Henley-based Fixed Interest investment team in the high yield and investment grade space. This gives us a more defensive and selective exposure to corporate debt in our portfolio. We bought protection on a credit default swap index and sold interest rates swaps to help cushion the idea in the event of a market sell-off or an interest rate shock. US High Yield Though the risks for lower quality credit have risen, we see selective value in US high yield credit over our two- to three-year time horizon. We implemented this idea by reflecting the US high yield strategy of Invesco s Atlanta-based Fixed Income investment team. This gives us a more defensive and selective exposure to corporate debt in our portfolio. We also bought protection on a credit default swap index to help cushion the idea in the event of a market sell-off.

3 Currency Chile and Mexico vs Australia and New Zealand In our view, the Chilean and Mexican pesos provide an attractive opportunity relative to the Australian and the New Zealand dollars. We believe the Chilean peso is a measurably cheap currency (by BEER and REER measures) and that macroeconomic fundamentals are improving in Chile, while in Australia and New Zealand, policy makers are still struggling to rebalance their economies following the end of the commodities super cycle. In addition, while the Mexican economy may suffer following the election of President Trump, the Mexican currency has depreciated to such an extent that Mexico has become an attractive place to invest. We used currency forwards to buy the Chilean and Mexican pesos and sell the Australian and the New Zealand dollars to implement this idea. Indian Rupee vs Chinese Renminbi We favour the Indian rupee because, in our view, India is slowly reforming its economy and the currency looks cheap relative to the Chinese renminbi. Additionally, Chinese authorities may look to weaken the renminbi so that China remains competitive. We bought the Indian rupee and sold the Chinese renminbi to implement this idea using currency forwards. Japanese Yen vs Korean Won While Japan s recovery continues to be frustratingly slow, aggressive monetary stimulus has also translated into a weaker yen. At the same time, a strong won is decreasing the competitiveness of the export-oriented Korean economy. Our valuation work suggests that the Korean won is expensive relative to its trading partners, including the Japanese yen. We gained exposure to this idea through currency forwards. Japanese Yen vs Swiss Franc This idea pairs a long position in the Japanese yen, which we believe is measurably cheap following years of targeted monetary policy, against a short position in the Swiss franc, which we believe is expensive even allowing for its safe haven status. We gained exposure to this idea through a combination of currency forwards and options. Swedish Krona vs Euro We favour the Swedish krona relative to the euro. The krona is a measurably cheap currency and we believe Sweden has better long-term country fundamentals compared to the Eurozone, its biggest trading partner. We isolated our view by using currency forwards. US Dollar vs Canadian Dollar The Canadian economy appears fragile having seen a strong consumer-led cyclical recovery driven by the low interest rate regime and weak Canadian dollar. At the same time, President Trump has embarked on reflationary policies such as tax cuts and other reforms that could potentially boost the US dollar. While economic surprises have risen recently in Canada, there are concerns that the North American Free Trade Agreement (NAFTA) is under threat. In addition, we believe the markets are being overly optimistic in their expectations for Canadian interest rate hikes. We implemented this idea using currency forwards and have also added some Canadian interest rate exposure through a three-year interest rate swap, as we expect rates to fall. US Dollar vs Euro We believe long-term economic growth dynamics favour the US over Europe, which should continue to strengthen the US dollar against the euro. The divergence in monetary policy between Europe and the US could put further downward pressure on the euro. We implemented this idea using currency options and interest rates swaps to express a view on exchange rates and the interest rate differential. US Dollar vs Taiwanese Dollar We introduced a short position in the Taiwanese dollar vs the US dollar. We believe the Taiwanese currency has benefited from the cyclical increase in global trade but could struggle from here, relatively, as inflation in the country remains low and as China moves from being an importer of Taiwanese goods to being a competitor. At the same time, US interest rates look set to rise, which would increase the carry available from the idea. We implemented this idea using currency forwards. Long EM Carry This is a cross asset idea that takes advantage of the carry available from two currencies and pairs them with a short position in the relative country equity indices. We believe the Mexican peso is now extremely cheap and the increased carry from central bank interest rate hikes makes it an attractive currency to hold. At the same time, we believe Mexican equities are between fair value and expensive. Similarly, in Brazil, the high carry offered by the real is attractive while Brazilian equities look expensive across a number of measures following a strong rally. The idea is implemented using currency forwards and equity index futures. We also included an option overlay, which should cushion the idea in case of a sharp devaluation of the Brazilian real.

4 Equity Dispersion The realized correlation of stocks versus their relevant equity indices, in particular the S&P 500 and Euro Stoxx 50, has fallen. This reflects the less macro nature of the equity market relative to the past and means that individual stock returns are starting to diverge. We believe this will continue and this idea aims to capture the rising dispersion amongst stock returns. We implemented this view through an options-based index that captures the volatility of a basket of constituents from the S&P 500 and Euro Stoxx 50 indices rising relative to the indices themselves. European Divergence Broadly, we believe that European equities are reasonably valued and should not only benefit from a global economic pick-up, but also stable balance sheets and a competitive currency. To express this idea, we gained selective exposure to the market by reflecting two Invesco European equity strategies, managed out of Henley and Frankfurt, and adjusted the beta exposure with equity futures. Additionally, we added an option structure for more conditional exposure to market upside. Global Based on our view that the global corporate sector is relatively healthy, we want exposure to global equities, which are offering some value and could benefit from a continued modest pick-up in economic growth and earnings potential. We have gained broad exposure by reflecting three Invesco global equity strategies managed by our colleagues in the Henleybased Invesco Perpetual Global Equities team. We used equity index futures to adjust the beta in this idea and also included a US equity option structure for conditional upside capture. In order to counter potential increases in equity volatility, we held an options structure on the Swiss market index, which isolates volatility. Selective Asia Asian equities appear attractively valued with many markets characterized by stabilising fundamentals, therefore we like selective exposure to Asian equities within the portfolio. We favour the Taiwanese market, which has a high dividend yield and strong free cash flow and believe the emerging market universe will benefit from a continued corporate recovery. We implemented this idea by reflecting two Asian equity strategies, both managed by the Invesco Perpetual Asian Equities team in Henley, to gain exposure to our colleagues bottom-up stock picking. We tailored this view by selling MSCI Asia ex Japan equity index futures to reduce Asian equity beta within the idea and buying equity index futures to gain additional Taiwanese exposure. Finally, in Hong Kong, we used options to express a view that volatility may rise over the next two to three years, as well as switched a portion of the beta exposure to options on the Hang Seng China Enterprise Index. UK We believe UK equities offer some value because of the global growth exposure of the majority of UK large cap companies. We gained broad access to UK equities by reflecting two UK equity strategies managed by the Henley-based Invesco Perpetual UK Equities team. At the same time, we adjusted the beta exposure with equity index futures for hedging and options for conditional upside participation. We also used an option structure to gain exposure to any potential increase in volatility. Japan Japanese monetary policy now appears to officially include the buying of Japanese equities and creating positive wealth effects through their Quantitative and Qualitative Easing (QQE) policy. However, we believe the current market level of Japanese equities is probably a fair reflection of the support offered by this policy, so we do not have a strong directional view of the market. We implemented this idea using equity index options, which allows for market participation on the upside, but may also limit downside.

5 Inflation Short Europe Central banks appear to be retreating from their policies of pushing down real interest rates to underpin growth and inflation. As a result, we believe medium-term inflation is too high, especially given significant labour market slack and a strong currency. We implemented this idea by using European inflation swaps. US vs UK The inflation spike caused by sterling s fall in the UK combined with what appears to be relatively modest inflation expectations in the US, especially considering a continued pick-up in wages there, has exaggerated the difference between inflation expectations in the UK and the US. We believed that this spread would narrow and implemented this idea by shorting a UK 10-year inflation swap and being long the US equivalent. We also believed that 10-year UK inflation appears too high and that the inflation curve in the UK is too flat. To capture these views, we went long the 30-year inflation swap in the UK and added an additional short position at the 10-year part of the curve. We expect 30-year inflation to rise relative to 10-year. Interest Rates Australia In our view, difficulties in the Australian economy, looser monetary policy and the fallout from weakening commodity demand have not been fully reflected in Australia s current interest rates and will prevent the Reserve Bank of Australia from making any meaningful interest rate hikes in the medium term. To capture this view, we implemented the idea using Australian interest rate swaps, which will benefit the strategy if rates fall. Global Yield Curves This idea captures a number of views on government bond yield curves around the globe where we believe markets do not fully reflect either the monetary policy environment or inflation risk premium likely in the years ahead. In Sweden, we believe the rate differential between shorter-term government bonds and longer-term issuance will narrow, even if the central bank is more tolerant of higher inflation, so we expect the curve to flatten. In Europe, we believe European Central Bank normalisation is already priced into the long-end of the yield curve but not the short end, so we also expect the curve to flatten here. Finally, in the US, we believe the belly of the forward swaps curve is expected to be too flat in two years time but we expect it to steepen to meet the spot curve. We implemented this idea using interest rate swaps and forward interest rates swaps. Selective EM Debt We believe we can benefit from holding selective, high-yielding emerging market local currency debt, which have attractive currencies (against a variety of measures) and improving economic indicators and fundamentals. To implement this idea, we bought local currency 10-year government bonds in Poland and 5-year government bonds in Mexico. Yield Compression The difference in the spread between long-end forward rates in the US versus the UK appears too wide (near post-global financial crisis levels). In the UK, yields on longer-dated government debt look too low given the current monetary environment, while in the US, interest rate increases have already started and have been largely priced into a steepening curve. We believe that as the respective interest rates markets get back in line with their monetary policy cycles, the spread between the rates will narrow, with UK rates likely moving higher relative to the US. We captured this view by using forward interest rate swaps and swaptions. Volatility Asian Equities vs US Equities The difference between the implied volatility of US equities versus Asian equities, based on options prices, is very low versus history. We believe that Asia Pacific equity markets should be inherently more volatile, particularly as their indices are dominated by financials. We implemented this idea using variance swaps, which isolate the volatility of each market. Additionally, we held some VIX options to buffer the idea against any shorter-term US centric events.

6 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 fund makes significant use of financial derivatives (complex instruments) which will result in the fund being leveraged and may 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 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. The securities that the fund 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 Fund invests, may mean that the Fund may not be able to sell those securities at their true value. These risks increase where the Fund invests in high yield or lower credit quality bonds and where we use derivatives. Changes in interest rates will result in fluctuations in the value of the fund. Important information This document is for Professional Clients only and is not for consumer use. 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. 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. 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 Short Reports and the Prospectus, which are available using the contact details shown. Issued by Invesco Fund Managers Limited Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK Authorised and regulated by the Financial Conduct Authority EMEA5222/63859/PDF/130718