Invesco Global Targeted Returns Strategy Investing in ideas

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1 Invesco Global Targeted Returns Strategy Investing in ideas July 2017 This document is for Professional Clients and Financial Advisers in Continental Europe; Qualified Investors in Switzerland and Professional Clients in Dubai, Jersey, Guernsey, Isle of Man, Malta, Cyprus and the UK; Professional Investors in Hong Kong; Institutional Investors in Australia and the United States (as defined in the important information); Professional Investors in Japan; Institutional and/or Accredited Investors in Singapore; Qualified Institutional Investors in Taiwan; in Canada, this document is restricted to Accredited Investors as defined under National Instrument It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. This document is not for consumer use; please do not redistribute this document. 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 30th June and reflects changes made during the second quarter of Portfolio changes during the second quarter of 2017: The team added two new ideas to the portfolio: Commodity Short Equity Dispersion The implementation of five ideas changed significantly: Equity France vs Germany and Italy merged into Equity European Divergence New Invesco strategies were added to our Equity Selective Asia and Equity Global ideas A UK inflation steepener was added to Inflation US vs UK The team removed three ideas from the portfolio: Currency Long Sterling Interest Rates European Curve Steepener Interest Rates Japanese Curve Steepener The UK pound recovered towards 1.30 US dollars from around 1.20, at the same time, volatility had moved lower. Given the price level and volatility conditions, we were less comfortable deriving an income from selling puts and so closed our long sterling idea. The European curve steepened from mid-2016 to the end of the year, which benefited this idea. The idea was removed as more hawkish positioning by the European Central Bank suggested that short rates might not remain as anchored as previously. This could see the curve flatten from a front end increase, which would be negative for the position. The Japanese interest rate curve steepened in the second half of 2016 but had stabilised since the turn of the year. We believed that further steepening was unlikely in our two- to three-year investment horizon and hence we exited the idea. Invesco Global Targeted Returns Strategy Investing in ideas, July

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 presents across a basket of commodities. Short We believe commodity prices will remain under pressure as global growth continues its stuttering progress. This idea takes advantage of the shape of the commodity curve, however, the total return swap indices used to implement the idea have a higher beta with a slightly negative outlook on commodities. So, we will still expect to extract a premium in a flat market, however, returns will likely be enhanced if commodity prices fall. In addition, we sold total return swaps against an index of energy and base metals, in order to express a small negative view on these commodities. 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 also noted that the market is charging a higher premium to protect investors from a default in Europe over the next ten years than over the next five years. We think this difference in risk is too high (meaning the curve appears too steep). In order to isolate the spread between the 5- year and 10-year corporate default rates, which we expect to narrow, we implemented the idea through 5-year and 10-year credit default swap indices. 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 team*. This gives us a more defensive and selective exposure to corporate debt in our portfolio. Invesco Global Targeted Returns Strategy Investing in ideas, July

3 Currency Chile and Mexico vs Australia and NZ 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 options, which has the benefit of dampening our downside exposure to the yen, and could help if Japanese authorities suddenly instigate further quantitative easing, and hence depreciate the yen further. 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 offers some protection in case of a sharp devaluation of the Brazilian real. Russian Ruble vs Canadian Dollar We favour the Russian ruble, which has devalued substantially due to a mixture of oil exposure and political issues, and could potentially benefit from domestic policy. Canada continues to have unaddressed structural issues and the currency is vulnerable to a domestic slowdown. Though we appreciate that the ruble has a high beta to oil prices, this idea is focussed on the improving economic fundamentals in Russia, and not a recovery in the oil price. Additionally, pairing the ruble with the Canadian dollar has helped neutralize some of the commodity sensitivity. We implemented this idea using currency forwards. US Dollar vs Canadian Dollar The Canadian economy appears fragile, especially following the dramatic fall in oil and other commodities prices. Canada has also lost competitiveness over recent years and its housing market looks stretched. In our view, the trigger for getting the economy back on track will be a fall in the currency and, based on our valuation work, we believe the Canadian dollar remains overvalued versus the US dollar. We reflected this idea by selling the Canadian dollar against the US dollar using currency forwards. Given the appreciation of the US dollar, we also sold call options against the US dollar, which should generate an additional premium even if the Canadian dollar does not depreciate much further. Finally, we bought put options, which would help cushion the idea if the US dollar fell sharply. 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. Following the rapid appreciation of the US dollar versus the euro, we implemented this idea using currency options to express a view on forward exchange rates. We also sold put options against the euro, which will likely generate an additional premium if the euro does not depreciate much further. Invesco Global Targeted Returns Strategy Investing in ideas, July

4 Equity Dispersion The realized correlation of stocks within the S&P 500 index 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 between stock returns. We implemented this view through an options-based index that captures the volatility of the 50 largest constituents of the S&P 500 index rising relative to the index as a whole. 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 broad exposure to the market by reflecting two Invesco Pan- European equity strategies*, managed out of Henley and Frankfurt, and adjusted the beta exposure with equity futures. Given the strong performance of German equities over the last year and ongoing concerns around the financial sector in Italy, we believe more businessfriendly policies in France will help French equity markets outperform its neighbours. Therefore, we used equity index futures to pair a positive view on French equities with a less positive view on both German and Italian equities. Given ongoing risks in Europe, we also added an additional overlay to this idea where we are long volatility on a European banks index, which should help cushion the idea in the event of any market sell-offs. 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 that will 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 Henley*. We used equity index futures to adjust the beta in this idea and have also added options structures through the VIX index and the Swiss equity market index to counter potential increases 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 is likely to generate an income if the market stays at current levels or moves higher. 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. We implemented this idea by reflecting two Asian equity strategies* that are both managed by an Invesco team in Henley, to gain exposure to our colleagues bottom-up stock picking and bought equity index futures to implement our Taiwanese exposure. We tailored this view by selling MSCI Asia ex Japan equity index futures to reduce beta within the idea. Finally, we also used options to express a view that volatility will likely rise over the next two to three years 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, and adjusted the beta exposure with equity index futures. US Large Cap vs Small Cap US small cap equities appear to be trading on a large valuation premium to US large caps and we believe they have unrealistic profit growth priced in. We find greater value in large US stocks, which have stronger balance sheets and are well poised to benefit from the fundamentals of this economic recovery. We implemented this idea through a combination of equity index futures and equity index options. Inflation Short Real Yields and Inflation 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 the current spread between medium-term inflation and real rates in Europe is unsustainably wide and is likely to close with monetary policy pushing up against its limits. We implemented this idea by shorting interest rates swaps and inflation swaps as we expect the difference between the two to fall. US vs UK The current 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 added a view on the UK inflation curve where we believed it was too flat. To capture any increase in the differential, we were short the 10-year and long the 30-year inflation swap in the UK. Invesco Global Targeted Returns Strategy Investing in ideas, July

5 Interest rates Australia vs US In our view, difficulties in the Australian economy, looser monetary policy and the fallout from weakening commodity demand have not been fully reflected in current interest rates. Meanwhile, modest economic growth and limited interest rate hikes appear to have been priced into US interest rates. To capture this view, we implemented the idea using Australian and US interest rate 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, Hungary and Mexico. Swap Spreads Long-dated gilts and US Treasuries are trading around historically cheap levels compared to similarly dated interest rate swaps. We believe this spread should narrow as balance sheet constraints reduce and issuance falls. To implement this idea, we bought 30-year gilts and US Treasuries while selling the respective swaps. Sweden We believe Sweden has an unbalanced, industrially uncompetitive economy and that the recent recovery in inflation is not reflected in short rates which appear too low. As a result, we believe the rate differential between shorter term bonds and longer term bonds will narrow. We also favour the Swedish krona relative to the euro. The krona is a measurably cheap currency with better country fundamentals than the Eurozone. We isolated our rates view using forward interest rate swaps and used currency forwards to implement a long position in the krona versus the euro. 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 if the two respective interest rates markets get back in line with their monetary policy cycles, the spread between the rates will narrow, with the UK moving higher relative to the US. We captured this view by using interest rate swaps. 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 Asian equity markets should be inherently more volatile, particularly as their indices are dominated by Financials. We implemented this idea using derivative instruments, which isolate the volatility of each market. * The Invesco Global Targeted Returns Strategy gains exposure to underlying alpha strategies that are managed by various Invesco investment centres, globally. Individual strategies may not be available in all jurisdictions. Invesco Global Targeted Returns Strategy Investing in ideas, July

6 Contact information Amsterdam Brussels Dubai Frankfurt Isle of Man and Jersey Madrid Milan Paris Stockholm Vienna UK, Malta and Cyprus Zurich Hong Kong Atlanta Toronto Important information This document is for Professional Clients and Financial Advisers in Continental Europe; Qualified Investors in Switzerland and Professional Clients in Dubai, Jersey, Guernsey, Isle of Man, Malta, Cyprus and the UK; Professional Investors in Hong Kong; Institutional Investors in Australia, and the United States (as defined in the important information); Professional Investors in Japan; Institutional and/or Accredited Investors in Singapore; Qualified Institutional Investors in Taiwan; in Canada, this document is restricted to Accredited Investors as defined under National Instrument It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. This document is not for consumer use; please do not redistribute this document. Data as at 30 June, 2017, unless otherwise stated. This document is not subject to regulatory requirements that ensure impartiality of investment recommendations and investment strategy recommendations. Therefore, the prohibition of trading before the release of investment recommendations and investment strategy recommendations does not apply. 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, they are subject to change without notice and are not to be construed as investment advice. This material may contain statements that are not purely historical in nature but are forward-looking statements. These include, among other things, projections, forecasts, estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described herein. Actual events are difficult to predict and may substantially differ from those assumed. All forward-looking statements included herein are based on information available on the date hereof and Invesco assumes no duty to update any forward-looking statement. Accordingly, there can be no assurance that projections can be realized, that forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. 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. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Investors should consult a financial professional before making any investment decisions. 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. Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues. Underlying investments may appreciate or decrease significantly in value over short periods of time and cause share values to experience significant volatility over short periods of time. Leverage created from borrowing or certain types of transactions or instruments may impair liquidity, cause positions to be liquidated at an unfavorable time, lose more than the amount invested, or increase volatility. Short sales may cause an investor to repurchase a security at a higher price, causing a loss. As there is no limit on how much the price of the security can increase, exposure to potential loss is unlimited. Commodities, currencies and futures generally are volatile and are not suitable for all investors. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. As with all investments, there are associated risks. Please obtain and review all relevant materials carefully before investing. This document is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations where applicable. For the distribution of this document, Continental Europe is defined as Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Spain, Sweden and Switzerland. Canada For more information on the Invesco Global Targeted Returns Pool available to Canadian investors, or to obtain a confidential copy of the offering memorandum, please contact your Invesco Canada representative or your financial advisor. - Issued in Canada by Invesco Canada Ltd., 5140 Yonge Street, Suite 800, Toronto, Ontario, M2N 6X7. Hong Kong This document is provided to professional investors (as defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules) only. It is not intended for and should not be distributed to, or relied upon, by members of public or retail investors. - Issued in Hong Kong by Invesco Hong Kong Limited 景順投資管理有限公司, 41/F, Champion Tower, Three Garden Road, Central, Hong Kong. Invesco Global Targeted Returns Fund Investing in ideas, July

7 Japan This is distributed in relation to business of a discretionary investment contract. The information is not to recommend or solicit to transact or subscribe in any specified fund. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any specified fund. -Issued in Japan by Invesco Asset Management (Japan) Limited, Roppongi Hills Mori Tower 14F, Roppongi, Minato-ku, Tokyo , Japan, which holds a Japan Kanto Local finance Bureau Investment advisers licence number 306. Singapore This document is provided to Institutional and/or Accredited Investors only in Singapore. The fund(s) as mentioned in this document (where applicable) (the Fund ) is registered as a restricted foreign scheme in Singapore. The Fund is not authorized or recognised by the Monetary Authority of Singapore (the MAS ) and the Interests of the Fund are not allowed to be offered to the retail public. Each of the information memorandum of the Fund and any other document issued in connection with the offer or sale is not a prospectus as defined in the Securities and Futures Act (the SFA ). Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. You should consider carefully whether the investment is suitable for you. This document may not be circulated or distributed, nor may the Interests of the Fund be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. As the Fund is not denominated in Singapore dollars, eligible investors must be aware of their exposure to foreign currency exchange risk. - This document is issued in Singapore by Invesco Asset Management Singapore Ltd, 9 Raffles Place, #18-01 Republic Plaza, Singapore Taiwan This document is provided by Invesco Taiwan Limited ( Invesco Taiwan ). Address: 22F, No.1, Songzhi Road, Taipei 11047, Taiwan, R. O. C.; Telephone No.: It contains confidential and proprietary information and is intended only for private placement investors of offshore funds in Taiwan who are qualified under Article 52 of the Regulations Governing Offshore Funds or for professional investment institutions of non-securitized offshore funds in Taiwan who are qualified under the article 4 of Financial Consumer Protection Act (collectively the Qualified Investors ). It is delivered only to the Qualified Investors and may not be used by, copied, reproduced, relied upon or distributed in whole or in part, to any other person in Taiwan without prior written permission from Invesco Taiwan. 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Regulated by the Dubai Financial Services Authority. - Issued in Finland, Greece, Luxembourg and Norway by Invesco Asset Management SA, rue de Londres, Paris, France. - Issued in France by Invesco Asset Management S.A., rue de Londres, Paris, France, which is authorised and regulated by the Autorité des marchés financiers in France. - Issued in Germany by Invesco Asset Management Deutschland GmbH, An der Welle 5, Frankfurt am Mai, Germany. - Issued in Ireland by Invesco Global Asset Management DAC, Central Quay, Riverside IV, Sir John Rogerson s Quay, Dublin 2, Ireland. Regulated in Ireland by the Central Bank of Ireland. - Issued in Isle of Man and Malta by Invesco Global Asset Management DAC, Central Quay, Riverside IV, Sir John Rogerson s Quay, Dublin 2, Ireland. Regulated in Ireland by the Central Bank of Ireland. - Issued in Italy by Invesco Asset Management SA, Sede Secondaria, Via Bocchetto 6, Milan, Italy - Issued in Jersey and Guernsey by Invesco International Limited, 2nd Floor, Orviss House, 17a Queen Street, St Helier, Jersey, JE2 4WD. Regulated by the Jersey Financial Services Commission. - Issued in Netherlands by Invesco Asset Management S.A. Dutch Branch, UN Studio Building, Parnassusweg 819, 1082 LZ, Amsterdam, Netherlands. - Issued in Spain by Invesco Asset Management SA, Sucursal en España, C/ GOYA, 6-3, Madrid, Spain. - Issued in Sweden by Invesco Asset Management SA, Swedish Filial, Stureplan 4c, 4th Floor Stockholm, Sweden. - Issued in Switzerland and Liechtenstein by Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich, Switzerland. - Issued in the UK by Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority. Invesco Perpetual is a business name of Invesco Asset Management Limited (UK), which forms part of Invesco Ltd. -Issued in the United States by Invesco Advisers, Inc., Two Peachtree Pointe, 1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA and Invesco Distributors, Inc., 11 Greenway Plaza, Suite 1000, Houston, Texas [GL287/2017] Invesco Global Targeted Returns Fund Investing in ideas, July