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Fund Profile

Invesco Select: Balanced Risk Allocation 14 December 2022

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Invesco Select: Balanced Risk Allocation. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
Despite a challenging period in 2022 so far, IVPB’s 17% discount looks anomalous…
Overview

Invesco Select Balanced Risk (LON:IVPB) aims to deliver equity-like returns but with half the volatility of equity markets over a full economic cycle. It seeks to give some protection to investors from market falls and inflation, with exposures across growth, defensive and real return assets. As such, it fits squarely into the Flexible Investment sector and, although within a peer group that is characterised by the wide diversity of approaches to investment, IVPG occupies its own niche because of the very different way it invests and manages risk.

The investment process is very different to most other funds, which we explain in more detail in the Portfolio section. However, in summary, IVPB maintains a risk-balanced exposure to fixed income, equities and commodities and employs a systematic process to shift tactically on a monthly basis around an otherwise relatively static long-term strategic allocation to each of these asset classes.

This year, equities and bonds have detracted, but this has been offset by the commodity exposure which has mitigated losses. In the year to the end of November 2022, IVPB’s NAV is down 8.8% and the reference benchmark is down 15.3%. This compares with the MSCI World Index which is down 0.3% in GBP terms. From the adoption of the strategy in February 2012 to 30/11/2022, IVPB has generated compound NAV returns of 3.7% per annum (Source: Morningstar).

Despite a challenging year, IVPB has, historically, demonstrated its ability to deliver through several very different periods for financial markets. According to the manager, the strategy has shown explicit strength in historic bear market phases, with the fund having outperformed global equities by 8% on average during bear markets, since the strategy’s inception. The shares have recently seen a dramatic derating, with the Discount seeing a significant widening.

Analyst's View

IVPB has exposure to liquid and global investment assets. However, IVPG’s exposure to the three main asset classes of bonds, equities and commodities is balanced by risk contribution, rather than capital invested. Because each asset class earns a risk premium over the long term and they are, generally, uncorrelated to each other, the combination results in a portfolio with significantly improved risk/return characteristics when compared to any one asset class.

In contrast to many other multi-asset strategies, the systematic approach means that investors can have a fair degree of confidence that performance will be predictable in any given scenario. However, by investing in equities for their growth potential, commodities for their ability to keep up with inflationary shocks, and fixed interest instruments (bonds) for their defensive qualities, it is not hard to see the portfolio as an ‘all-weather’ fund.

The strategy has proven itself to have delivered over a medium to long-term investment period, even if it does exhibit some exposure to market directionality over the short term. Investors may see IVPB as a solid, conservative core within an investment portfolio. Alternatively, it might be seen as a ‘volatility reducer’ for an existing portfolio, enabling investors to have a smoother trajectory of returns than might be achieved with a portfolio of more highly-correlated assets. Certainly, the strategy is more complex than many, but the current discount of c. 17% may present an interesting opportunity for long-term investors.

Bull

  • Robust long-term track record, through cycles with a systematic process not influenced by sentiment or emotion
  • Provides diversification to equity portfolios
  • Discount significantly wider than historic levels

Bear

  • Bond and equity markets can correlate over the short term, reducing diversification benefits
  • Relatively complex investment strategy
  • Small size of fund, mitigated by larger IP Select structure and share buybacks/issuance from treasury
Continue to Portfolio

Fund History

14 Dec 2022 Fund Analysis
Despite a challenging period in 2022 so far, IVPB’s 17% discount looks anomalous…
06 Jul 2022 A game of two halves
In the second article of our series on the AIC Flexible Investment sector we see how performance has stacked up during two years when markets were poles apart...
15 Jun 2022 Fund Analysis
IVPB continues to deliver on its objectives, yet trades on a discount of c. 7%...
11 May 2022 What is an investment trust?
The ins and outs of closed-ended funds and how they can support your investments…
12 Jan 2022 Fund Analysis
IVPB aims to offer equity-like returns, but with fewer nerve-wracking moments...
11 Mar 2021 Flash update: Invesco Select & Invesco Income Growth
With a merger of Invesco Select UK Equity shares and Invesco Income Growth, we learn that the management team is also merging….
03 Oct 2019 Taking back control - the ultimate flexible fund
We examine the benefits of Invesco Perpetual Select Trust's unusual structure...
09 May 2019 Fund Analysis
IVPB aims to provide an attractive total return in differing economic environments with a low correlation to equities and bonds...
15 Mar 2018 On target
Invesco Perpetual Select trust has a unique structure which lends itself to investing with a specific long term goal in mind...
15 Mar 2018 A fund for all seasons?
We examine the Invesco Perpetual Select Trust, which allows investors to switch between four share classes to suit their aims without crystallising gains...
05 Mar 2018 Fund Analysis
Aiming to provide an attractive total return in differing economic environments with a low correlation to equities and bonds
View all

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