Invesco Select: Balanced Risk Allocation 15 June 2022
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.
To provide an attractive total return in differing economic and inflationary environments, and with low correlation to equity and bond market indices.
Invesco Select: Balanced Risk Allocation
Scott E. Wolle
Association of Investment Companies (AIC) Sector
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
Invesco Select Balanced Risk Allocation (IVPB) share’s objective is to generate equity-like returns over an investment horizon of three to five years, but with a lower risk profile. The investment process is very different to most other funds, resulting in a highly diversified portfolio built using a process that operates from a fully quantitative platform. We explain the manager’s approach in more detail in the Portfolio section. However, in summary, IVPB maintains an 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.
If we look at recent months, equities and bonds have detracted, but this has been offset by the commodity exposure which has mitigated losses. Year to date, IVPB’s NAV is down 4.5%, which compares with the MSCI World Index which is down 10.5%. From the adoption of the strategy in February 2012, IVPB has generated compound NAV returns of 4.8% per annum (Source: Morningstar, to 24/05/2022).
IVPB has 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 inception.
Invesco Select’s board has a zero-tolerance discount policy, which has largely prevented the discount from deviating far from the board’s target of +/- 2% of NAV. However, at the time of writing, the shares trade on a discount of c. 7%, probably reflecting a lack of market liquidity in the broader investment trust market.
Other than the fact that the assets underpinning IVPB represent the vast majority of the liquid investment opportunities available globally, IVPG’s defining characteristic is that exposure to the three types of assets it holds are balanced by their risk exposure, rather than amounts invested. Because each asset class earns a risk premium over the long term, and they are each uncorrelated to each other, the combination results in a Portfolio with significantly improved risk/return characteristics than when compared to any one asset class.
In simple terms, 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. In contrast to many other ‘active’ multi-asset or ‘flexible’ strategies, the systematic approach means that investors can have a fair degree of confidence that performance will be predictable in any given scenario. In a market environment currently, where almost anything might happen, we see this predictability as an attractive characteristic.
In our view, 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 to an investment portfolio. Alternatively, it might be seen as a ‘volatility reducer’ to an existing portfolio, enabling investors to have a smoother trajectory of returns than might be achieved with a portfolio of more highly correlated assets.
- Robust long-term track record, through cycles
- Provides diversification to equity portfolios
- Systematic process means investment returns are not influenced by sentiment or emotion
- 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