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A trio of multi-asset derivative funds from Invesco Perpetual

Invesco Perpetual has introduced three multi-asset funds, each with their own volatility targets, that invest solely in derivatives and other financially-linked instruments.

The company believes that investors are looking for a better way to manage risk given the challenging market conditions they currently face. It believes that providing gains when markets are on the up, while not losing capital when markets fall has appeal can be achieved through exposure to assets that have a low correlation with each other.

Invesco Perpetual’s US based global asset allocaiton team has analysed data going back 30 years to identify three main asset classes that can be expected to have a low degree of correlation with each other at different stages of the economic cycle. These are equities, which typically perform well at times of non-inflationary growth, bonds that have traditionally performed well during recessionary periods and commodities that have performed well during periods of inflationary growth.

By gaining exposure to all three asset classes, the new funds aim to limit the impact of  one underperforming asset class and provide the potential for growth in different economic environments. The intention is to provide equity-style returns over the long term with a set level of average volatility for each portfolio over a market cycle -either 6 per cent, 8 per cent or 10 per cent.

Invesco Perpetual says that the use of derivatives enables pure exposure to asset classes with precise allocation. Derivatives are very liquid so the managers can trade the amounts they need to when they need to. The volatility-focused investment strategy means that although the fund’s exposure to each asset class may vary in percentage terms between 16 and 50 per cent, the level of risk that they bring to the portfolio is equal.

The funds are run using a quant model but tactical asset allocation adjustments will be made to take advantage of short-term market anomalies.

Some investors and their advisers may see these funds as a useful alternative to absolute return funds. Others may need proof that the strategy works in the form of a good track record, before taking the plunge.

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