Investing in ideas Navigating the economic and market cycle

Transcription

1 Investing in ideas Navigating the economic and market cycle September 2015 Richard Batty Fund Manager, Multi Asset Team, Invesco Perpetual, Henley-on-Thames This marketing document is for Professional Clients in Germany only and is not for consumer use. Please do not redistribute.

2 The diversification dilemma and our approach to multi asset investing

3 1-year rolling correlation, weekly data Bonds versus equities Flexibility is needed to achieve diversification over time 80% Correlation between the total return of US equities and 10-year bonds 60% 40% 20% 0% -20% -40% -60% -80% -100% Aug 90 Aug 94 Aug 98 Aug 02 Aug 06 Aug 10 Aug 14 Source: Invesco Perpetual, Thomson Reuters Datastream as at 25 August

4 Bonds versus equities Is the relationship still a global phenomenon? 80% Rolling 180-week correlation between global equities and 10-yr US Government bonds. 60% 40% 20% 0% -20% -40% US UK Germany Spain Source: Thomson Reuters Datastream as at 25 August

5 Mrz 15 Mai 15 Jul 15 Sep 15 Nov 15 Jan 16 Mrz 16 Mai 16 Jul 16 Sep 16 Nov 16 Jan 17 Mrz 17 Mai 17 Jul 17 Sep 17 Nov 17 Mrz 15 Mai 15 Jul 15 Sep 15 Nov 15 Jan 16 Mrz 16 Mai 16 Jul 16 Sep 16 Nov 16 Jan 17 Mrz 17 Mai 17 Jul 17 Sep 17 Nov 17 Why do correlations change? Macro factors can change asset class dynamics US interest rate expectations UK interest rate expectations 2,00 1,60 1,80 1,40 1,60 1,40 1,20 1,20 1,00 1,00 0,80 0,60 0,40 Jan-15 Jul-15 0,80 0,60 0,40 Jan-15 Jul-15 0,20 0,20 0,00 0,00 Source: Invesco Perpetual, Bloomberg, as at 25 August Estimates are based on current market conditions and are subject to change without notice. 5

6 Why think about investment ideas? To ensure consistent and alternative sources of diversification Correlation of individual investment ideas to global equities (MSCI World) Equity - Global Credit - European Curve Flattener Currency - Indian Rupee vs Chinese Renminbi Equity - US Large Cap vs Small Cap Volatility - Australian Dollar vs US Dollar Currency - Japanese Yen vs Korean Won -60% -40% -20% 0% 20% 40% 60% 180 week correlation with global equities* Source: Invesco Perpetual, as of 31 July * MSCI World, weekly data 6

7 Fund Impact (%) Why add crash protection? To mitigate the impact of plunging equity markets (Simulated) MSCI World Index Shock 4% 2% 0% -2% -4% -6% -8% -10% -12% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% MSCI World Index (Shock) Equity Beta Ideas in Portfolio Equity Beta Ideas in Portfolio - without "Crash Protection" Source: Invesco Perpetual as at 25 August

8 Crash protection illustrated Managing risk within the global equity idea If equities fall the global equity idea could underperform therefore we add some protection within the idea to cushion performance if risk assets have a set back Jun 14 Sep 14 Dez MSCI World, LHS Eurostoxx put options structure Source: Invesco Perpetual and Bloomberg as at 25 August Period covered: 1 June 2014 to 9 January

9 The Invesco Global Targeted Returns Fund The Philosophy & Process

10 Diversification benefit Invesco Global Targeted Returns Fund Investment proposition and philosophy Investing in ideas Portfolio: Typically individual investment ideas across asset classes 1 Total independent risk Target return: 3-month EURIBOR plus 5% on a rolling, three-year annualised basis* Target volatility: Less than half global equity 2 volatility over a rolling, three-year period* Portfolio risk Investment philosophy: Unconstrained research combined with a robust risk management process For illustrative purposes only. *Gross of fees. There is no guarantee this performance target or volatility target will be achieved ideas as at 31 July MSCI World. 10

11 A clear investment philosophy Invesco Global Targeted Returns Fund Unconstrained research approach: High conviction macro ideas 2-3 year investment horizon Across asset types and geographies Robust risk-based fund management: Risk-based analysis Genuine diversification Transparency and liquidity Source: Invesco. 11

12 Investing in ideas A repeatable three step process 1 Research Thematic T Economic E Approving ideas Analytic A Managers M 2 Fund management Risk Scenarios Structure Liquidity Combining ideas 3 Implementation Order Comply Execute Review Implementing ideas 4 Review and Oversight For illustrative purposes only. 12

13 Research note Inputs Approving ideas A repeatable process The Multi Asset team Invesco Chief Economist Our fund manager colleagues External research Proprietary research databases CIO challenge process Thematic T Economic E Analytic A Managers M 1 Research For illustrative purposes only. *internal star rating 13 Must generate a positive return in our central economic thesis Initial sizing and implementation route Assigned a 1, 2 or 3 star rating* Approving ideas

14 Robust risk management Inputs Combining ideas Our fund management process Approved ideas Risk Scenarios Structure Liquidity 2 Fund management Combining ideas to achieve genuine diversification Scenario and stress testing to create a robust portfolio Combination of funds and derivatives to take targeted exposure Combining ideas For illustrative purposes only. 14

15 Combining ideas Achieving diversification 2 Fund management A portfolio designed to target equity-like returns for less than half the risk of global equities over a rolling, three-year period Total independent risk 12.35%³ Diversification benefit 50% of global equity risk 4 Total portfolio risk 3.43%² Volatility - UK Equity vs Rates Volatility - Australian Dollar vs US Dollar Volatility - Asian Equities vs US Equities Interest Rates - UK Interest Rates - Sweden vs Europe Interest Rates - Selective EM Debt Interest Rates - European Curve Steepener Interest Rates - Australian Short Rates Interest Rates - Australia vs Europe Equity - US Staples vs Discretionary Equity - US Large Cap vs Small Cap Equity - Sell Puts as Long Japanese Equity Equity - Sell Puts as Long German Equity Currency - US Dollar vs Euro Currency - US Dollar vs Canadian Dollar Currency - Norwegian Krone vs UK Pound Currency - Japanese Yen vs Korean Won Currency - Indian Rupee vs Chinese Renminbi Credit - European Curve Flattener Credit - High Yield Equity - UK Equity - Selective Asia Exposure Equity - Global 0 Equity - European Divergence Independent risk³ Portfolio risk² Source: Invesco as at 31 July There is no guarantee this target will be achieved. For illustrative purposes only. 2 Portfolio risk the expected volatility of the fund as measured by the standard deviation of the current portfolio of ideas over the last three and a half years. 3 Independent risk the expected volatility of an individual idea as measured by its standard deviation over the last three and a half years. 4 Global equity risk is the expected volatility of the MSCI World index as measured by its standard deviation over the last three and a half years, 11.75% on 31 July

16 Simulation count Combining ideas Stress testing and economic scenario analysis some examples 2 Fund management Scenario 1. Stress testing of the portfolio using StatPro based on periods of historic market stress, e.g. Lehmans, European debt crisis 2. Analysis by the Multi Asset team of possible scenarios going forward Characteristics Positive Oil Shock Oil price falls (-33%), Indian rupee strengthens (+10%) China Bust HSCEI falls (-50%), HSCEI 1 yr vol spikes (to 50), Chinese yuan falls (-20%) Europe Shambles EUR falls (-15%), OAT-Bunds spread widens (+100bps) Crowded Trade Unwind S&P 500 falls (-30%), EURUSD strengthens (+10%) Cash is King New World Order S&P 500 falls (-50%), yield on US 10-yr Treasuries rises (+250bps) Oil price up (+50%), NOKEUR strengthens (+20%), Euro Stoxx 50 down (-20%) Recession 2015 S&P 500 falls to 1000, German bond prices rise (yields to 0.4%) Distribution of potential fund returns for a given scenario Bin -7.50% -6.75% -6.00% -5.25% -4.50% -3.75% -3.00% -2.25% -1.50% -0.75% 0.00% 0.75% 1.50% 2.25% 3.00% Fund returns 1 Blue line indicates probability-weighted best estimate, red line indicates worst case using lower quartile outcomes. For illustrative purposes only. 16

17 Implementing ideas Invesco Global Trading Desk Implementation through dealing desk Inputs Combined ideas Order Comply Execute Review 3 Implementation Knowledge and experience: Trading volumes of US$1,011bn*; of this the Alternatives and FX dealing desk traded US$711bn* Global dealing capability with designated dealer in Henley-on- Thames Global operating platform Implementing ideas Source: Invesco. For illustrative purposes only. *Data as at 31 December

18 Approving ideas Our central economic thesis Low, but positive, global economic growth Longer-term structural growth rates will remain subdued Inventory and capex concerns a potential drag on US economic growth Cyclical European recovery continues despite political risks Uncertain market impacts from changing liquidity Continued low short interest rates but potential for some rises (e.g. UK, US) Emerging markets are vulnerable to US dollar and rates moves Doubts over the real economy benefits from central bank action e.g. Japan Low inflation continues globally Ongoing competitive currency devaluation to keep inflation subdued Underlying inflation low as structural factors remain e.g. debt overhang Implied inflation priced into forward interest rates remains elevated Select opportunities in risk assets Cautious whether future earnings will grow enough to support equity valuations Demand for yield distorting fixed income valuations; US high yield fairer priced Diversified alpha as an additional source of value Various catalysts for market volatility Divergent economic policy continues to drive increased volatility Volatility likely from non-market forces, e.g. political interference Long-term impacts from the misallocation of capital Source: Invesco Perpetual as of 31 July For illustrative purposes only. 18

19 The Invesco Global Targeted Returns Fund Investment Ideas

20 Discard asset class labels Our approach to multi asset investing Step 1: Search for good investment ideas Strength of the corporate sector Central Bank driven volatility Deflation or inflation? Step 2: choose the right asset type to represent that idea Equities Government Bonds Corporate Bonds Real Estate Collective Investment Schemes Volatility Instruments Inflation Products Currencies Commodities Source: Invesco Perpetual. For illustrative purposes only. 20

21 Three examples of investment ideas 1. Economies are fighting for their share of global trade competitiveness is key across Asian markets to be able to compete. We believe the Korean Won needs to depreciate versus the Japanese Yen 2. The opportunities in fixed income lie in relative value ideas where the relative economic divergences have not yet been priced in. We expect the difference between Australian and Eurozone bond yields to narrow. 3. Sectors provide an indication as to economic growth expectations embedded in particular segments of the market. We expect US consumer staples stocks to outperform US consumer discretionary stocks given US growth risks. Source: Invesco Perpetual as at 30 June Portfolio characteristics are subject to change without notice. For illustrative purposes only. 21

22 Export growth, y/y% Trade weighted index Japanese Yen vs. Korean Won Implementation: Buy USDJPY puts, sell USDKRW puts Korea has lost competitiveness Because of the strength of the Korean Won Added to fund Japan Korea Korean Won Japanese Yen Source: Invesco Perpetual, Bloomberg as at 21 August For illustrative purposes only. 22

23 Unemployment rate, % Relative 10-year swap rates New idea: Australia vs. Eurozone interest rates Implementation: 10-year swap rates 14 3,5 12 3,0 10 2,5 8 2,0 6 1,5 4 1,0 2 0,5 0 Q Q Q Q Q Q Q ,0 Feb 09 Feb 11 Feb 13 Feb 15 US Australia Eurozone Australia - Eurozone Australia - US Source: Datastream and Bloomberg as at 21 August

24 Performance index New idea: US staples versus discretionary Implementation: sector index futures US Discretionary stocks have outperformed 300 Retail stocks have been building inventory as sales have slowed 6 1, , Consumer discretionary Consumer staples Retail sales Retail inventory to sales ratio, rhs 1,6 1,5 1,5 1,4 1,4 1,3 Source: Invesco Perpetual, Bloomberg as at 21 August For illustrative purposes only. 24

25 The Invesco Global Targeted Returns Fund Fund Analysis

26 Invesco Global Targeted Returns Fund Net performance (%) Returns 3 months 6 months 1 year Since inception 1 (Cumulative) (Annualised) Portfolio month Euribor Out/under performance Realised volatility Realised volatility of global equities Realised volatility as a percentage of equity volatility Past performance is not a guide to future returns % 39.24% 41.05% 39.01% Source: Invesco Perpetual as at 31 July Inception date 18 December Standard deviation of weekly returns. Global equities represented by MSCI World Index. Fund (A Accumulation share class) performance figures are shown in euro on a mid-to-mid basis, inclusive of net reinvested income and net of ongoing charges and portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. Benchmark source: Invesco Perpetual, total return, in euro. 26

27 Conclusion Achieving genuine diversification Asset class correlations are dynamic and change over time, so will not always provide diversification A degree of flexibility is needed to achieve genuine diversification throughout the cycle think about investment ideas rather than asset classes Within the Invesco Global Targeted Returns Fund we integrate risk and fund management to enable us to achieve both our return and risk objectives. Investing in ideas Source: Invesco, as at 30 June

28 Risk warnings The value of investments, and 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 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. 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. Please refer to the most up to date relevant fund and share class-specific Key Investor Information Document (KIID) for more information on our funds. For a complete set of risks please consult the current prospectus. 28

29 Appendix

30 Invesco Global Targeted Returns Fund Business update Invesco Perpetual Part of Invesco Ltd (AUM bn 1 ) Based in Henley-on-Thames Assets under management (AUM): bn 2 (Including retail, offshore and institutional assets) Invesco Global Targeted Returns Fund Managed by the Invesco Perpetual Multi Asset team Launched on 18 December 2013 Performance: % 3 from inception to 31 July 2015 Assets under management: 6,881,454,704 4 across three domiciles; including 1,754,493,482 4 in the LUX-domiciled fund Past performance is not a guide to future returns. Source: Invesco Perpetual. 1 As at 30 June As at 30 June Cumulative. Inception date 18 December Fund performance figures are shown in euro on a mid-to-mid basis, inclusive of reinvested income and gross of the ongoing charges and portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. 4 As at 31 July

31 An experienced Multi Asset Team Core investment team with broad multi discipline support A team of macro specialists solely focused on the Invesco Global Targeted Returns Fund Years of experience David Millar, FIA: Head of Multi Asset, Fund Manager 27 Dave Jubb, FIA: Fund Manager 33 Richard Batty, PhD: Fund Manager 20 Gwilym Satchell, PRM: Risk Manager 7 Georgina Taylor: Product Director 15 Clive Emery: Product Director 18 Danielle Singer, CFA: US-based Product Director 14 Saul Shaul: Fund Analyst 9 Steve Hawes: Research Analyst 5 Mike Marshall, CFA: Risk Analyst 9 Invesco: Broad multi discipline support Investment Expertise Invesco Ltd. s Chief Economist 62 Henley-based investment professionals More than 750 Invesco investment professionals worldwide Invesco Infrastructure Governance Dealing Operations Marketing Support Source: Invesco Perpetual as at 31 July Years of experience subject to rounding. 31

32 APT output Risk contribution Credit - European Curve Flattener Currency - Indian Rupee vs Chinese Renminbi Currency - Norwegian Krone vs UK Pound Currency - US Dollar vs Euro Equity - Global Equity - Sell Puts as Long German Equity Equity - UK Equity - US Staples vs Discretionary Interest Rates - Australian Short Rates Interest Rates - Selective EM Debt Interest Rates - UK Volatility - Australian Dollar vs US Dollar Credit - High Yield Currency - Japanese Yen vs Korean Won Currency - US Dollar vs Canadian Dollar Equity - European Divergence Equity - Selective Asia Exposure Equity - Sell Puts as Long Japanese Equity Equity - US Large Cap vs Small Cap Interest Rates - Australia vs Europe Interest Rates - European Curve Steepener Interest Rates - Sweden vs Europe Volatility - Asian Equities vs US Equities Volatility - UK Equity vs Rates Risk off Partial risk off Neutral Partial Risk on Risk on Credit Equity Currency Interest Rates Volatility Australia Asia Canada China Europe EM Germany Global India Japan Korea Norway UK US Source: Invesco as at 31 July For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change. 32

33 APT output Assessing each individual trade and its contribution to the risk of the portfolio % of global equity 1 Portfolio volatility % Fund Value 1,765,882, Sum of independent risk Independent % Risk Marginal Equity 99% 1 Position month VaR 2.30% Size Idea Equity beta Long Short 0.16 risk impact risk correlation Cash cover Size req. 8.33% type Credit - European Curve Flattener % 42.4% 42.4% rv Credit - High Yield % 18.6% 21.8% net Currency - Indian Rupee vs Chinese Renminbi % 15.8% 15.8% rv Currency - Japanese Yen vs Korean Won % 5.0% 5.4% rv Currency - Norwegian Krone vs UK Pound % 0.8% 3.2% rv Currency - US Dollar vs Canadian Dollar % 21.6% 20.9% net Currency - US Dollar vs Euro % 8.3% 2.9% net Equity - European Divergence % 11.2% 6.9% net Equity - Global % 11.7% 8.8% net Equity - Selective Asia Exposure % 8.3% 4.7% net Equity - Sell Puts as Long German Equity % 0.2% 3.1% net Equity - Sell Puts as Long Japanese Equity % 0.2% 3.5% net Equity - UK % 11.5% 10.0% net Equity - US Large Cap vs Small Cap % 5.6% 5.8% rv Equity - US Staples vs Discretionary % 5.3% 5.2% rv Interest Rates - Australia vs Europe % 6.9% 8.4% rv Interest Rates - Australian Short Rates % 19.5% 19.5% rv Interest Rates - European Curve Steepener % 25.1% 10.0% rv Interest Rates - Selective EM Debt % 5.0% 0.0% rv Interest Rates - Sweden vs Europe % 19.9% 20.0% rv Interest Rates - UK % 31.9% 46.9% rv Volatility - Asian Equities vs US Equities % 13.0% 13.1% rv Volatility - Australian Dollar vs US Dollar % 17.8% 17.8% rv Volatility - UK Equity vs Rates % 1.8% 2.0% rv Residual FX & Cash* % 37.0% 0.0% net Source: Invesco as at 31 July Sum of representative idea sizes: 315.8%. Definitions: Independent risk: The risk of the idea in isolation. Risk impact: The change in the portfolio s risk as a result of adding the idea to the portfolio. Marginal risk: The attribution of the overall portfolio volatility to each idea. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change. The contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospective information availability may cause changes. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. 1 Global equity represented by MSCI World Index. 33

34 Invesco Global Targeted Returns Fund Contribution by investment idea Contribution (bp, gross) Investment ideas Q Q Q Q Credit - European Curve Flattener Credit - European Financials -3 n.a. n.a. n.a. Credit - High Yield Currency - Brazilian Real vs Chilean Peso 10 n.a. n.a. n.a. Currency - Indian Rupee vs Chinese Renminbi Currency - Japanese Yen vs Korean Won n.a. n.a Currency - Norwegian Krone vs UK Pound Currency - US Dollar vs Canadian Dollar Currency - US Dollar vs Euro Equity - EM vs US n.a. n.a. n.a. -24 Equity - European Divergence Equity - Global Equity - Selective Asia Exposure Equity - Sell Puts as Long German Equity Equity - Sell Puts as Long Japanese Equity n.a. n.a Equity - Sell Puts as Long US Equity n.a. Equity - UK Equity - UK vs Switzerland n.a. Equity - US Large Cap vs Small Cap Equity - US Staples vs Discretionary n.a. n.a. n.a. -10 Interest Rates - Australia vs Europe n.a. n.a Interest Rates - Australian Short Rates 6 8 n.a. n.a. Interest Rates - European Curve Steepener 38 4 n.a. n.a. Interest Rates - Japanese Curve Flattener Interest Rates - Selective EM Debt Interest Rates - Sweden vs Europe n.a. Interest Rates - UK n.a Interest Rates - UK vs France n.a. Interest Rates - US Duration n.a. Interest Rates - US vs Europe n.a. n.a. Volatility - Asian Equities vs US Equities Volatility - Australian Dollar vs US Dollar Volatility - Chinese Equities n.a. n.a. Volatility - UK Equity vs Rates Cash & Residual FX* Total quarterly fund returns (gross) Source: Barclays Point. Data is to end June The contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospective information availability may cause changes. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. POINT Portfolio Return is calculated by the attribution system, Barclays POINT, using a portfolio constructed by a daily feed of positions and may differ from the gross return. 34

35 Portfolio Review and Oversight Portfolio changes A slowly evolving portfolio Q Q o Inflation Short UK Interest Rates Short Australian Rates Interest Rates US vs Europe Interest Rates European Curve Steepener Equity Sell Puts as Long Japanese Equity Interest Rates Australia vs Europe Currency Japanese Yen vs Korean Won Equity Sell Puts as Long US Equity Equity UK vs Switzerland Interest Rates US Duration Interest Rates UK vs France Interest Rates Sweden vs Europe Volatility Chinese equities (rolled into Selective Asia equity) Interest Rates Selective EM Debt: added Mexican 10-year govt bonds Q o + + o Q to date Interest Rates Japanese Curve Flattener Equity European Divergence: removed options on German and French equity indices Equity EM vs US Equity US Staples vs Discretionary Inflation Short UK becomes Interest Rates UK Interest Rates Australian short rates Interest Rates Sweden vs Europe Interest Rates European Curve Steepener Equity EM vs US Source: Invesco Perpetual as at 31 July For illustrative purposes only. Portfolio characteristics may change without any notice. 35

36 Clear focus on high quality conviction investing Historically Lead to good client outcomes Invesco Perpetual + Henley GPR Asset Weighted Performance to 31 July % 90% 80% 33% 44% 70% 63% 60% 77% 50% 40% 54% 23% 30% 20% 15% 36% 10% 10% 0% 12% 18% 11% 1% 1% 2% YTD 1 Year 3 Years 5 Years 4th Quartile 3rd Quartile 2nd Quartile 1st Quartile Source: Invesco Perpetual as at 31 July

37 Our risk management process CIO Oversight Governance of the fund Oversight of the investment process Independent Risk Function Independent risk analysis Independent risk challenge Review and Oversight GPMR = Global Performance Measurement and Risk. For illustrative purposes only. 37

38 Invesco Global Targeted Returns Fund Portfolio physical investment Strategies The Multi Asset team has direct access to the fund management capabilities of its Henley-based colleagues and of the broader Invesco group. The Invesco Global Targeted Returns Fund will generally hold between 50-70% of its assets in strategies from within the Invesco Perpetual and Invesco range. Cash Ideas currently expressed through strategies include: Equities European Divergence Credit High Yield Equities Global Equities UK Equities Selective Asia Cash 1 The cash holdings are used as collateral against derivative positions which are used to implement fund ideas and manage risk. Cash will be managed by Invesco Global Liquidity, please refer to slide 35 for more information Managed by Invesco Fixed income Counterparty exposures limited Global Credit Research team Funds/strategies 1 Cash is expected to be 30-50% of the portfolio, but may be as high as 75%. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change. 38

39 Cash management Invesco Global Liquidity Invesco Global Liquidity has US$72.3 billion in assets worldwide The senior investment team has worked together for over a decade The cash allocation pool will be invested in money market instruments The Global Liquidity team aims to achieve: Preservation of principal Liquidity Yield Credit risk is mitigated by investing in a portfolio of high quality and well diversified short-term debt instruments, supported by an independent credit approval and monitoring process. The approved list requires a minimum short-term credit rating of A1/P1/F1. Market risk is mitigated by limiting the weighted average maturity of the portfolio to a maximum of 60 days. Liquidity risk is mitigated by holding a high proportion of cash in overnight deposits and liquid money market securities. Where appropriate, high quality European bills may be used. The aim is to achieve a balance between liquidity and yield. Due to the use of commercial papers and certificates of deposit, the cash portfolio should generate a slightly higher yield than overnight deposits. Source: Invesco as at 31 July Where the investment team has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. 39

40 Collateral Management Reducing counterparty risk 1. Introduction 2. Collateral requirements 3. Collateral coverage 4. Stress testing 5. Re-investment of collateral Invesco has a collateral policy to reduce counterparty risk on OTC derivatives transactions Invesco requires collateral for the following types of transactions: stock lending, reverse repurchase transactions, and OTC derivative transactions In practice, Invesco will generally only accept cash as collateral on OTC derivative transactions OTC derivative transactions won t trigger automatic collateral payments and will be based on appropriate materiality levels, therefore no initial margin exchanged Daily check on concentration and spread rules by portfolio ops; additional reporting provided to compliance and IRF In relation to OTC derivatives we operate a minimum transfer amount under the Credit Support Annex (CSA) where applicable: The fund will obtain or pay collateral where the netted unrealised gain or loss is greater than 250,000 in the base currency of the fund For smaller funds, where 250,000 is significantly more than 0.5% of the NAV, a smaller amount can be agreed and specified in the CSA Where the fund is in receipt of collateral or where collateral is re-invested for more than 20% of NAV then additional checks will need to be completed to ensure compliance with ESMA guidelines Stress tests on the liquidity of the collateral to be implemented if collateral exceeds 30% of the fund s NAV Liquidity stress tests are performed in line with portfolio liquidity stress tests by GPMR Cash collateral received as a result of transactions in OTC derivatives contracts will be held at the custodian of the fund Any cash collateral re-invested is done so in line with the ESMA guidelines For illustrative purposes only. 40

41 Operating platform Process & Controls: Company Boards; CIO Challenge Process; Daily, Monthly & Quarterly Risk Reviews (RPLS); IP Management Group; Regular Broker Review; Internal Audits; Compliance Monitoring; Dealing Commission Committee; TCF Training & Scorecards; Derivatives Committee; New Instruments Committee; Departmental Procedures; Breach Reporting; Counterparty Risk Committee; Global Trading Oversight Committee (GTOC) OVERSIGHT Portfolio Valuation / Modelling Tool Fund Manual / POM / IPG Derivative Forms Bank Loan Checklists Data automation FM Daily /Weekly sign off Derivative Matrix Overdraft monitoring Notification of strategy/idea Pre Trade risk analysis IM Procedures Allocation Policy CRD Access Segregation Trade entry controls IM Procedures P2 CRD Apollo APT Bloomberg FMC MatLab Datastream Pre Trade Alerts Breach Recording Pre Trade Blocks Stock Availability checks Compliance Approvals IVZ Restricted list CRD FMC CRD P2 FMC BWISE Broker Approval & Set Up Process Trade by Trade Broker Assessment Trade Execution Policy Broker Contracts / MiFID / ISDA Transaction Cost Analysis Matching & Confirmation process IM Procedures CRD FMC Bloomberg SWIFT OMGEO CTM TRADE EXECUTION FM Sign Off of unquoted / illiquid securities Quarterly Pricing Committee Fair Value policy Fund Manager weekly & Monthly Review and Sign Off GlobeOP v BNYM Pricing Validation BNYM CADIS FMC GlobeOp FMC BNYM / InvestOne Apollo Daily Reconciliations of Cash & Stock to Custodian / Bank Weekly Market Reconciliation IP / BNYM Oversight of Swing Pricing Fund Manager Reviews and Sign off CRD JPM TRAC BWISE StatPro Counterparty Risk DB RCBanken Daily Post Trade checks against Regulatory and Investment Restrictions Daily IRF Checks to RPLS/Derivatives Matrix Breach Reporting to Management & Board IT Applications: Peoplesoft; Plateau; Success Factors; SharePoint; Complinet Source: Invesco as at 31 December For illustrative purposes only. 41 Process & Controls Systems Workflow Steps RESOURCING Workflow Steps Systems Process & Controls Process & Controls: Annual Appraisals & Development Plans; Recruitment Process; Continual Professional Development; Regulatory Training; Resource & Succession Planning; Remuneration Policy; Conduct / Ethics Policies; Segregation of Duties

42 CIO Challenge The CIO Challenge covers the following areas of focus 1 Performance 2 Assets, 3 Attribution/Contribution 4 Risk 5 Financial 6 Active 7 Transaction 8 Stock Performance against relevant peer groups and indices on a discreet and cumulative basis. Performance dispersion. Systems: Lipper, Morningstar, Statpro Composites Flows & Liquidity Information relating to assets managed, subscriptions, redemptions, net flow, liquidity of underlying portfolio to trade to cash. Attribution showing the relative contribution to performance. For equity this could be measured at Country, Industry, Sector and stock level. For Fixed Income portfolios this could be measured to show contribution by credit rating, duration, issuer and issue Risk reward charts and total fund level. Risk reports showing tracking error, beta, highest marginal contribution to risk by stock etc Attributes Analysis showing the style tilts of the portfolio to value, growth, momentum, yield etc. Positioning Information relating to active positions by Country, Industry, Sector, Stock for equities. For Fixed Income active positions by credit, duration, industry and issuer. Analysis Portfolio activity over the period under review including charts of purchase/sale activity relative to stock price movements. Analysis Individual stock analysis often using broker research to challenge the decisions made by a Fund Manger at a very granular level. For illustrative purposes only. 42

43 Independent risk function Independent Risk Function (IRF) Monitoring Daily Strategy notifications Derivatives oversight APT risk report The Multi Asset team includes the IRF in its notification s to enable the IRF to effectively identify and analyse complex, multi-legged derivative transactions after they are executed The IRF conduct monitoring of executed derivative transactions on an ongoing basis and to provide regular reporting/escalation to the Derivatives Committee The IRF have access to APT and run a daily report for market risk analysis purposes so as to identify any emerging risks early on Risk profile & limit system The IRF, on a daily basis, monitor the risk limits for market risk, liquidity risk, the sum of the notionals of all derivatives used and counterparty risk Monthly Investment risk meetings The Multi Asset team, the Investment Oversight team and the IRF meet at least monthly Quarterly Fund manager reviews The IRF meet with fund managers on a quarterly basis to discuss the key risks of their portfolios For illustrative purposes only. 43

44 Market Risk Risk Profile & Limit System (RPLS) The RPLS includes internal risk limits developed by the Independent Risk Function in consultation with the fund manager taking into account the fund s investment objectives/strategy and risk profile. Green Yellow Amber Red Absolute VaR < Strategy Relative Volatility (upper bound) < N/A Strategy Relative Volatility (lower bound) > N/A Fund Relative Volatility < N/A In addition to Absolute VaR, the RPLS includes three further risk metrics computed by APT: a) each derivative strategy s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) upper bound; b) each derivative strategy s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) lower bound; and c) the portfolio s (total, diversified) Relative Volatility vs. the MSCI World Index (GBP). For illustrative purposes only. 44

45 Liquidity Risk Monitored by GPMR using RC Banken system Based on outflows (historical data or scenarios) and holdings Largest 1/5/10 days outflows at a 90 to 99.9% confidence level (using Generalized Extreme Value Distribution) For each security, a bid-ask spread from a variety of sources: In Normal Market Conditions In Fire Sale Market Conditions Outputs of the model: portfolio breakdown by liquidity level, liquidity ratios, losses given the net outflows For illustrative purposes only. 45

46 Team biographies David Millar: FIA, Head of Multi Asset and Fund Manager Based in Henley-on-Thames, David joined Invesco Perpetual in January 2013 and heads the Multi Asset team. After commencing his investment career with Scottish Widows in 1989, where he qualified as an actuary, David joined the Fixed Interest team at Scottish Widows Investment Partnership in 1996, becoming Head of Bond Strategy and chair of their Bond Policy Group. In 2008, he joined Standard Life Investments as Investment Director in their Multi-asset investing team. He was one of the portfolio managers within their Global Absolute Return Strategies capability and was chair of their Bond Investment Group. David holds a BSc (Hons) in Mathematical Statistics from the University of Cape Town and is a Fellow of the Institute and Faculty of Actuaries. Richard Batty: PhD, Fund Manager Based in Henley-on-Thames, Richard joined Invesco Perpetual in March 2013, and serves as a fund manager for the Multi Asset team. Previously, he had worked at Standard Life Investments since 2003 where he was the Global Investment Strategist in their Strategy team which is now part of Standard Life s Multi-asset Investing team, gaining additional responsibilities for Global Tactical Asset Allocation in Prior to joining Standard Life Investments, he began his investment career at James Capel/HSBC as an equity strategist in During this part of his career, Richard became a highly-rated, senior member of its industry renowned Economics and Strategy group. In 1994, he was awarded a PhD in Financial Economics from Brunel University, where he was a part-time research assistant and taught both graduate and undergraduate students. Dave Jubb: FIA, Fund Manager Based in Henley-on-Thames, Dave joined the company in March 2013, and serves as a Fund Manager for the Multi Asset team. Prior to this, he worked at Standard Life Investments where he was an Investment Director, Multi Asset Investing, and was one of the fund managers of the firm s Global Absolute Return Strategies capability. Dave joined Standard Life Group in 1982 as a computer programmer and after a period in the Actuarial Department of Standard Life Canada, he joined Standard Life Investments where he held positions as a fixed income fund manager and strategist before joining their Multi-asset Investment team in Dave graduated from St Andrews University in 1982 with a BSc (Hons) in Mathematics and is a Fellow of the Institute and Faculty of Actuaries. Source: Invesco as at 30 June

47 Team biographies (continued) Gwilym Satchell: PRM TM Risk Manager Based in Henley-on-Thames, Gwilym joined the company in March Prior to this, he commenced his career in 2008 at Standard Life Investments, where he was involved in Multi-asset Investing risk management, in particular the development of scenario analysis techniques. In addition, he was responsible for managing a range of liability-driven investment (LDI) funds. Gwilym holds the PRM designation which is an independent validation of skills and commitment to the highest standard of professionalism, integrity, and best practices within the risk management profession. He graduated from Warwick University in 2005 with a degree in Computer Science, and gained a Masters degree at the University of Edinburgh Business School in Georgina Taylor: Product Director Based in Henley-on-Thames, Georgina joined our company in June 2013 and is the Product Director for the Multi Asset team. Georgina commenced her career with HSBC in 2001 as an Equity Strategist. She went on to join the Equity Strategy team at Goldman Sachs in 2004 where she wrote global equity and asset allocation research. Georgina gained asset management experience at Legal & General Investment Management, contributing to the overall asset allocation outlook for the firm and multi asset funds. Before joining Invesco Perpetual Georgina was head of Equity Strategy, EMEA, at State Street Global Markets, producing and presenting on asset allocation and equity research. Georgina holds a BSc (Hons) in Economics from the University of Bath. Clive Emery: Product Director Based in Henley-on-Thames, Clive joined the company in July 2015 and serves as a Product Director for the Multi Asset team. Clive commenced his career with Merrill Lynch in 1997, where he advised asset managers on European Equities. In 2004, he joined Dresdner Kleinwort Benson as a Director in their Equities Division becoming the Head of their Equity Hedge Fund team in He went on to join Société Générale in 2007 as the Head of their Equity Hedge Fund Advisory team. Clive graduated from the University of Exeter in 1995 with a BSc (Hons) in Economics & Politics and in 1997 he gained a Masters from the London School of Economics in the Politics & Economics of Transition for Eastern Europe. Danielle Singer: Senior Client Portfolio Manager Based in New York, Danielle joined the company in June 2014, and serves as a Senior Client Portfolio Manager for Invesco Perpetual s Multi Asset team on their US strategy. Before joining the company, Danielle was a strategist and director of Global Investment Solutions (GIS) team at UBS, where she was involved in the review and setting of multi-asset and currency strategies, interacting with the investment team to coordinate investment strategy, and assisting clients as part of the GIS initiative. Previously, Danielle was an account manager for UBS s Institutional Investment Management group. Prior to joining UBS in 2004, she worked on the auction rate securities desk at Deutsche Bank. Danielle earned a BA degree at Middlebury College and an MBA at the University of Chicago with concentrations in analytic finance and econometrics. She holds the Series 3, 7 and 66 registrations. Danielle is also a CFA charterholder and a member of the New York Society of Security Analysts. Source: Invesco as at 30 June

48 Team biographies (continued) Simon Ferguson: CFA, Senior Dealer, Alternatives and Foreign Exchange Based in Henley-on-Thames, Simon Ferguson joined Invesco in 2013 as a senior trader on the Alternatives and FX Trading desk, covering global derivative markets. Simon was previously a co-portfolio manager at Cayuga Capital, starting in July 2010 and implementing investment views through derivative instruments across the equity, fixed income, credit, FX and commodity markets. From 2002, he worked for Hermes Investment Management, running the Tactical Asset Allocation Overlay for the British Telecom pension scheme. Prior to that, Simon worked for a number of sell-side firms from 1993, including Goldman Sachs, Schroders and Julius Baer (Paris). Simon graduated from the University of Wales, Bangor, with a first-class degree in Economics. Simon also holds the Chartered Financial Analyst designation and has recently passed the Chartered Institute for Securities & Investment Level 4 Derivatives (IAD) exam. Saul Shaul: Fund Analyst Based in Henley-on Thames, Saul joined the company in May 2012 as an IT contractor working in front office IT and was later assigned to the implementation project working on the technical build of Invesco Perpetual s Multi Asset investment platform. In January 2014 Saul joined the Multi Asset team as a fund analyst. Saul commenced his career in front office IT in 2006 and has worked as an IT contractor on several projects involving Fund Management and Trading systems. He graduated from The University of Portsmouth in 1998 with a degree in International Finance and Trade. Steven Hawes: Research Analyst Based in Henley-on-Thames, Steve joined the company in July 2010, and since January 2014 has served as a Trainee Analyst within the Multi Asset team. Steve joined Invesco Perpetual as a Client Services Executive, specialising in investment performance. He graduated from the Sheffield Hallam University in 2010 with a BA (Hons) in Business and Financial Services and passed the Investment Management Certificate (IMC) in January Source: Invesco as at 30 June Mike Marshall: CFA, Risk Analyst Based in Henley-on-Thames, Michael joined the company in June 2013, and since March 2015 has served as a Risk Analyst within the Multi Asset team. Michael joined Invesco Perpetual as a Senior Valuations Analyst and subsequently managed the OTC Derivatives and Alternatives team, reporting to the Head of EMEA Portfolio Services. Prior to joining Invesco Perpetual, he held various Derivative Analyst positions at Tier 1 investment banks and other asset management firms working in a broad range of derivatives-related fields. Michael graduated from the University of Cape Town in 2006 with a Bachelor of Business Science (Hons) in Finance and Accounting and is a Chartered Financial Analyst (CFA ) charterholder.

49 Important information This marketing document is for Professional Clients in Germany only and is not for consumer use. Please do not redistribute. It is not subject to German regulatory requirements that ensure impartiality of financial analysis. Therefore, the prohibition of trading before the release of financial analysis does not apply. This document is not an invitation to subscribe for shares in the fund and is by way of information only. It is not intended to provide specific investment advice including, without limitation, investment, financial, legal, accounting or tax advice, or to make any recommendations about the suitability of the fund(s) for the circumstances of any particular investor. You should take appropriate advice as to any securities, taxation or other legislation affecting you personally prior to investment. Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. This document should not be construed as investment advice. 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. Where Invesco has expressed views and opinions, these may change. The information provided on the investments and investment strategy (including current investment themes, the research and investment process, and portfolio characteristics, weightings, and allocation) represents the views of the fund managers at the time this material was completed, and is subject to change without notice. Past performance is not a guide to future returns. 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. 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 attribution and contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospectiveinformation availability may cause changes. The distribution and the offering of the fund or its share classes in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This is not investment advice and does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. The fund is available only in jurisdictions where its promotion and sale is permitted. Please refer to the most up to date relevant fund and share classspecific Key Investor Information Document for more information on our funds. Further information on our products is available using the contact details shown. 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. This marketing document is not an invitation to subscribe for shares in the fund and is by way of information only, it should not be considered financial advice. The performance data shown does not take account of the commissions and costs incurred on the issue and redemption of units. As with all investments, there are associated risks. This document is not financial advice and is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. There may be differences in fee structures, in minimum investment amounts, etc. Please check the most recent version of the fund prospectus in relation to the criteria for the individual share classes and contact your local Invesco office for full details. Please be advised that the information provided in this document is referring to Class A (accumulation- EUR) exclusively. Germany: This document is issued in Germany by Invesco Asset Management Deutschland GmbH regulated by Bundesanstalt für Finanzdienstleistungsaufsicht. 49