Invesco fund sees value in financials

Type: Oeic

Aim: Income and growth by investing mainly in bonds issued by banks and other financial institutions, with some exposure to equities and related
securities in the financial sector, and in cash/cash equivalents

Minimum investment: Lump sum £500, monthly £20

Investment split: 100% globally in bonds, equities, related securities in the financial sector and cash/cash equivalents

Isa eligible: Yes

Charges: Initial 5%, annual 1.25%

Special offer: Initial charge reduced to 3% for Isa investments including Isa transfers and 3.25% for direct investments

Offer period: Until further notice

Commission: Initial 3%, renewal 0.5%


Invesco Perpetual has introduced the global financial capital fund to take advantage of the current investment opportunities in the global financial sector, in which it sees a lot of potential value. The fund will invest mainly in bonds issued by banks and other financial institutions, with lesser exposure to equities. It can also hold other securities issued by financial institutions and cash or cash equivalents.

Invesco Perpetual says the capital raising from banks and insurers, along with their reduction of assets is positive for investors in the financial sector. It also says yields are compelling, providing a good income stream.

Putting the fund in to its market context, Hargreaves Lansdown investment analyst Richard Troue says: “For banks and financial institutions the process of recovering from the 2008 financial crisis is on-going. Change is required at a structural and regulatory level which, according to Invesco Perpetual’s Paul Read and Paul Causer, could bring significant investment opportunities.”

Troue points out that this new fund will invest in the bonds and equities of banks and other financial institutions. “Paul Read and Paul Causer will be responsible for the fixed-income element of the portfolio, which at launch is expected to account for the majority of the fund. Nick Mustoe, Invesco Perpetual’s Chief Investment Officer, will run the equity portion of the fund, drawing on the expertise of the wider Invesco Perpetual equity team. At launch this will account for up to 5 per cent of the fund, but has the potential to rise to 40 per cent.”
Troue observes tha the managers currently see opportunities to access attractive yields at values not seen since 2008 and 2009. “They estimate the yield on the portfolio will be between 9 and 11 per cent at launch – variable and not guaranteed. But as the fund can invest up to 40 per cent in equities, the yield could vary significantly over time.”
Initially, the fund will be focused on the UK and Europe, but Troue points out that the managers also have the flexibility to pursue opportunities in other developed markets as well as higher-risk emerging markets. “At launch bonds issued by Barclays are expected to feature in the portfolio. Barclays has three well known franchises – Barclaycard, Barclays Bank and Barclays Capital. The managers note that it did not receive state aid in 2008, is profitable, pays a dividend, it has 10 per cent of its balance sheet in cash, and only modest exposure to the euro zone periphery. Paul Causer will target banks who suffered during the volatility in 2011, such as Societe Generale and those that, in their view, have been unjustifiably tarred by their country of residence, such as Spanish bank Santander.
“I think it’s fair to say that many see investing in the banks as a binary bet. Either you will make a lot of money or lose a lot of money in the
process. This should be a key consideration for anyone thinking about investing,” says Troue.
Turning to the potential drawbacks of the fund, Troue says: “Paul Read and Paul Causer have significant exposure to this theme in their other fixed interest funds and for most investors this could be a better way to gain access to their current views on financial and bank bonds with the added benefit of a more diversified portfolio. For sophisticated investors happy with taking higher risk this new fund offers pure exposure to an area two very experienced managers are currently very positive on.”
Identifying funds that could provide the main competition, Troue says: “There are not many products available to retail investors that are in direct competition with this fund. Investors who like the theme, but do not want to play it in such a concentrated way could consider one of Paul Read or Paul Causer’s other funds that also have high financial weightings, such as the Invesco Perpetual corporate bond fund or the Invesco Perpetual tactical bond fund.” He adds that the Invesco Perpetual distribution and monthly income plus funds also offer exposure to Neil Woodford’s favourite equity income ideas.

Suitability to market: Average
Investment strategy: Good
Charges: Average
Adviser remuneration: Average
Overall 6/10