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Balancing act from Invesco Perpetual

Invesco Perpetual – Balanced Risk 8

Type: Oeic

Aim: Growth by investing in derivatives and other financial instruments to gain exposure to equities, bonds and commodities with 8% average volatility

Minimum investment: Lump sum £500, monthly £20

Investment split: 100% in derivatives and other financial instruments

Isa eligible: Yes

Charges: Initial 5%, annual 1.25%, annual 0.75% without renewal commission

Special offer: Initial charge reduced to 3%

Offer period: Until further notice

Commission: Initial 3%, renewal 0.5%

Invesco Perpetual’s balanced risk 8 is one of three multi-asset funds, each with their own volatility targets, that invest solely in derivatives and other financially-linked instruments.

By gaining exposure to equities, bonds and commodities the three 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 in the case of balanced risk 8, or 10 per cent.

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

Considering how the fund could be useful for IFAs and their clients, Michael Philips proprietor Michael Both says: Invesco Perpetual has often been high on my short-list of managers to recommend to clients so naturally a low risk, all-conditions type of fund sounds as though it might tick all the right boxes. Until you read the information on this fund, anyway. It wasn’t long before I began looking for where I had last put down my bargepole, which I found close at hand, keeping life settlement funds and absolute return funds well away from my recommended list.

“It is important to be fair and open minded when considering any investment opportunity and an examination of the actual results of similar funds Invesco Perpetual’s Scott Wolle has been running since 2009 based in dollars and Euros reveals they have given a steady return totalling about 30 per cent in just under three years. While the phrase “trust me, I’m a CFA – Certified Financial Analyst” probably won’t ever be one of the most popular chat-up lines, this has undoubtedly been an impressive performance.”

Both adds that IFAS need to consider what might be good for our clients in the future rather than what would have been good in the past. “A low risk, smoothed return is just what they want, but how confident can we be this fund will deliver in the future, in real-time not just back-testing?”

Turning to the potential drawbacks of the fund, Both says:Commodities generate no yield and are mostly priced in US dollars. Of the 16 baskets, only two are explicitly related to the UK economy and sterling, and the FTSE 100 is itself extremely international. There is no clarity of how this currency exposure will be hedged, if at all, thus investors must be made aware that this could have a very significant impact on their net return in Sterling. Both adds that it may be a very good outcome. “But if the target is low risk, then what, precisely, should investors understand by that term? I don’t think I have ever seen the word risk appear so many times in a piece of investment literature yet not once does the manager deign to spell out what he means by it when applied to this fund for our customers. There is no benchmark so it will be difficult to measure objectively how well the fund is doing.

Identifying the main competition, Both singles out Aberdeen multi-asset, Cazenove multi-manager diversity and Fidelity multi asset strategic fund.

Summing up, Both says: “I wonder how many retail investors will appreciate the significance of the fund’s exposure being up to three times the net asset value. The investment strategy was back-tested from 1973 to 2008 which certainly suffered many challenging periods but possibly not including a credit and liquidity crunch much like the present. It also didn’t make allowances for fees and was based on unleveraged indices, which is very different from the strategy which will be employed by the fund. “

Both says that since this fund is investing primarily in derivatives of precisely the type which were most buffeted by the current maelstrom, the fund’s risk management strategies may be far less robust than they theorise. “Remember LTCM? Your PI insurer does. This looks like the product of some really clever analysts but whether it is suitable for mainstream retail investors is, at least to me, far less clear.”

Both wonders whether such a highly geared fund of derivatives should be targeted at retail Isa investors with a minimum investment as low as £500. “I suspect that only very sophisticated investors with exceptionally high appetites for speculation would consider it appropriate as part of a low risk core. I do like the objective of a low risk, low cost smooth growth fund.”

Both says the fund does seem to have achieved its objectives since launch,  but has doubts about its use of highly geared derivatives rather than cash ETFs.


Suitability to market:  Poor

Investment strategy: Good

Charges: Good

Adviser remuneration: Average

Overall 7/10


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