Investing in ideas Navigating the economic and market cycle · 4 Investing in ideas Navigating the...
Transcript of Investing in ideas Navigating the economic and market cycle · 4 Investing in ideas Navigating the...
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Investing in ideasNavigating the economic and market cycle
September 2015
Richard BattyFund Manager, Multi Asset Team, Invesco Perpetual, Henley-on-Thames
This marketing document is for Professional Clients in Germany only and is not for consumer use.
Please do not redistribute.
The diversification dilemma and our approach to multi asset investing
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Bonds versus equitiesFlexibility is needed to achieve diversification over time
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Source: Invesco Perpetual, Thomson Reuters Datastream as at 25 August 2015.
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Correlation between the total return of US equities and 10-year bonds
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Bonds versus equitiesIs the relationship still a global phenomenon?
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Source: Thomson Reuters Datastream as at 25 August 2015.
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US UK Germany Spain
Rolling 180-week correlation between global equities and 10-yr US Government bonds.
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Why do correlations change?Macro factors can change asset class dynamics
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Source: Invesco Perpetual, Bloomberg, as at 25 August 2015. Estimates are based on current market conditions and are subject to change without notice.
UK interest rate expectationsUS interest rate expectations
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Why think about investment ideas?To ensure consistent and alternative sources of diversification
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Source: Invesco Perpetual, as of 31 July 2015. * MSCI World, weekly data
-60% -40% -20% 0% 20% 40% 60%
Currency - Japanese Yen vs Korean Won
Volatility - Australian Dollar vs US Dollar
Equity - US Large Cap vs Small Cap
Currency - Indian Rupee vs Chinese Renminbi
Credit - European Curve Flattener
Equity - Global
180 week correlation with global equities*
Correlation of individual investment ideas to global equities (MSCI World)
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Why add ‘crash protection’?To mitigate the impact of plunging equity markets
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Source: Invesco Perpetual as at 25 August 2015.
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-2%
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Fu
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pact
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MSCI World Index (Shock)
Equity Beta Ideas in Portfolio Equity Beta Ideas in Portfolio - without "Crash Protection"
(Simulated) MSCI World Index Shock
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Crash protection illustratedManaging risk within the global equity idea
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Source: Invesco Perpetual and Bloomberg as at 25 August 2015. Period covered: 1 June 2014 to 9 January 2015.
If equities fall the global equity idea could underperform therefore we add some protection within the idea to cushion performance if risk assets have a set back
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MSCI World, LHS Eurostoxx put options structure
The Invesco Global Targeted Returns FundThe Philosophy & Process
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Invesco Global Targeted Returns FundInvestment proposition and philosophy
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Portfolio: Typically 20-30 individual investment ideas across asset classes1
Target return: 3-month EURIBOR plus 5% on a rolling, three-year annualised basis*
Target volatility: Less than half global equity2 volatility over a rolling, three-year period*
Investment philosophy: Unconstrained research combined with a robust risk management process
For illustrative purposes only.
Portfolio risk
Total independent risk
Div
ers
ific
ation b
enefit
Investing in ideas
*Gross of fees. There is no guarantee this performance target or volatility target will be achieved.
124 ideas as at 31 July 2015. 2MSCI World.
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A clear investment philosophyInvesco Global Targeted Returns Fund
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Source: Invesco.
Unconstrained research
approach:
High conviction macro ideas
2-3 year investment horizon
Across asset types and geographies
Risk-based analysis
“Genuine” diversification
Transparency and liquidity
Robust risk-based fund
management:
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Investing in ideasA repeatable three step process
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For illustrative purposes only.
Approving ideas
Thematic
T
Economic
E
Analytic
A
Managers
M
Combining ideas
Risk Scenarios Structure Liquidity
Implementing ideas
Order Comply Execute Review4Review and Oversight
1Research
2Fund management
3Implementation
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Approving ideasA repeatable process
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For illustrative purposes only.
The Multi Asset team
Invesco Chief Economist
CIO challenge process
External research
Proprietary research databases
In
pu
ts
Our fund manager colleagues
Research
no
te
Must generate a positive return in our central economic thesis
Initial sizing and implementation route
Assigned a 1, 2 or 3 star rating*
1Research
Thematic
T
Economic
E
Analytic
A
Managers
M
Approving ideas*internal star rating
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Combining ideasOur fund management process
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For illustrative purposes only.
2Fund management Combining ideas
Risk Scenarios Structure Liquidity
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bu
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an
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Approved ideas
Combining ideas to achieve genuine diversification
Scenario and stress testing to create a robust portfolio
Combination of funds and derivatives to take targeted exposure
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Combining ideasAchieving diversification
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Source: Invesco as at 31 July 2015. 1There is no guarantee this target will be achieved. For illustrative purposes only. 2Portfolio risk – the expected volatility of the fund as measured by the standard deviation of the current portfolio of ideas over the last three and a half years. 3Independent risk – the expected volatility of an individual idea as measured by its standard deviation over the last three and a half years. 4Global equity risk is the expected volatility of the MSCI World index as measured by its standard deviation over the last three and a half years, 11.75% on 31 July 2015.
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Independent risk³ Portfolio risk²
Volatility - UK Equity vs Rates
Volatility - Australian Dollar vs US Dollar
Volatility - Asian Equities vs US Equities
Interest Rates - UK
Interest Rates - Sweden vs Europe
Interest Rates - Selective EM Debt
Interest Rates - European Curve Steepener
Interest Rates - Australian Short Rates
Interest Rates - Australia vs Europe
Equity - US Staples vs Discretionary
Equity - US Large Cap vs Small Cap
Equity - Sell Puts as Long Japanese Equity
Equity - Sell Puts as Long German Equity
Currency - US Dollar vs Euro
Currency - US Dollar vs Canadian Dollar
Currency - Norwegian Krone vs UK Pound
Currency - Japanese Yen vs Korean Won
Currency - Indian Rupee vs Chinese Renminbi
Credit - European Curve Flattener
Credit - High Yield
Equity - UK
Equity - Selective Asia Exposure
Equity - Global
Equity - European Divergence
A portfolio designed to target equity-like returns for less than half the risk of global equities over a rolling, three-year period12
Fund management
Total portfolio risk3.43%²
Total independent risk 12.35%³
50% of global equity risk4
Diversification benefit
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Combining ideasStress testing and economic scenario analysis – some examples
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1Blue line indicates probability-weighted best estimate, red line indicates worst case using lower quartile outcomes. For illustrative purposes only.
1. Stress testing of the portfolio using StatPro based on periods of historic market stress, e.g. Lehmans, European debt crisis
2. Analysis by the Multi Asset team of possible scenarios going forward
Scenario Characteristics
Positive Oil Shock Oil price falls (-33%), Indian rupee strengthens (+10%)
China Bust HSCEI falls (-50%), HSCEI 1 yr vol spikes (to 50), Chinese yuan falls (-20%)
Europe Shambles EUR falls (-15%), OAT-Bunds spread widens (+100bps)
Crowded Trade Unwind S&P 500 falls (-30%), EURUSD strengthens (+10%)
Cash is King S&P 500 falls (-50%), yield on US 10-yr Treasuries rises (+250bps)
New World OrderOil price up (+50%), NOKEUR strengthens (+20%), Euro Stoxx 50 down (-20%)
Recession 2015 S&P 500 falls to 1000, German bond prices rise (yields to 0.4%)
2Fund management
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Distribution of potential fund returns for a given scenario1
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Implementing ideasInvesco Global Trading Desk
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Source: Invesco. For illustrative purposes only. *Data as at 31 December 2014.
Im
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desk
In
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Knowledge and experience: Trading volumes of US$1,011bn*; of this the Alternatives and FX dealing desk traded US$711bn*
Global dealing capability with designated dealer in Henley-on-Thames
Global operating platform3Implementation Implementing ideas
Order Comply Execute Review
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Approving ideasOur central economic thesis
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Source: Invesco Perpetual as of 31 July 2015. For illustrative purposes only.
Low, but positive, global economic growth Longer-term structural growth rates will remain subdued Inventory and capex concerns a potential drag on US economic growth Cyclical European recovery continues despite political risks
Uncertain market impacts from changing liquidity Continued low short interest rates but potential for some rises (e.g. UK, US) Emerging markets are vulnerable to US dollar and rates moves Doubts over the real economy benefits from central bank action e.g. Japan
Low inflation continues globally Ongoing competitive currency devaluation to keep inflation subdued Underlying inflation low as structural factors remain e.g. debt overhang Implied inflation priced into forward interest rates remains elevated
Select opportunities in risk assets Cautious whether future earnings will grow enough to support equity valuations Demand for yield distorting fixed income valuations; US high yield fairer priced Diversified alpha as an additional source of value
Various catalysts for market volatility Divergent economic policy continues to drive increased volatility Volatility likely from non-market forces, e.g. political interference Long-term impacts from the misallocation of capital
The Invesco Global Targeted Returns FundInvestment Ideas
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Discard asset class labelsOur approach to multi asset investing
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Source: Invesco Perpetual. For illustrative purposes only.
Equities Government Bonds
Corporate Bonds
Real Estate Collective Investment Schemes
Volatility Instruments
Inflation Products
Currencies Commodities
Step 2: choose the right asset type to represent that idea
Step 1: Search for good investment ideas
Strength of the corporate sector
Central Bank driven volatility
Deflation or inflation?
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Three examples of investment ideas
1. Economies are fighting for their share of global trade –competitiveness is key across Asian markets to be able to compete. We believe the Korean Won needs to depreciate versus the Japanese Yen
2. The opportunities in fixed income lie in relative value ideas where the relative economic divergences have not yet been priced in. We expect the difference between Australian and Eurozone bond yields to narrow.
3. Sectors provide an indication as to economic growth expectations embedded in particular segments of the market. We expect US consumer staples stocks to outperform US consumer discretionary stocks given US growth risks.
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Source: Invesco Perpetual as at 30 June 2015. Portfolio characteristics are subject to change without notice. For illustrative purposes only.
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Japanese Yen vs. Korean WonImplementation: Buy USDJPY puts, sell USDKRW puts
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Korea has lost competitiveness
Source: Invesco Perpetual, Bloomberg as at 21 August 2015. For illustrative purposes only.
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Because of the strength of the Korean Won
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New idea: Australia vs. Eurozone interest ratesImplementation: 10-year swap rates
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Source: Datastream and Bloomberg as at 21 August 2015.
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US Discretionary stocks have outperformed
Source: Invesco Perpetual, Bloomberg as at 21 August 2015. For illustrative purposes only.
Retail stocks have been building inventory as sales have slowed
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New idea: US staples versus discretionary Implementation: sector index futures
The Invesco Global Targeted Returns FundFund Analysis
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Invesco Global Targeted Returns Fund Net performance (%)
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Source: Invesco Perpetual as at 31 July 2015. 1Inception date 18 December 2013. 2Standard deviation of weekly returns. Global equities represented by MSCI World Index.Fund (A Accumulation share class) performance figures are shown in euro on a mid-to-mid basis, inclusive of net reinvested income and net of ongoing charges and portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. Benchmark source: Invesco Perpetual, total return, in euro.
Returns 3 months 6 months 1 year Since inception1
(Cumulative) (Annualised)
Portfolio -1.87 -3.24 3.65 9.49 5.76
3-month Euribor 0.00 0.00 0.05 0.23 0.14
Out/under performance -1.87 -3.24 +3.60 +9.26 +5.62
Realised volatility2 3.77 3.88 4.65 4.08
Realised volatility of global equities2 8.90 9.89 11.33 10.45
Realised volatility as a percentage of equity volatility
42.35% 39.24% 41.05% 39.01%
Past performance is not a guide to future returns.
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ConclusionAchieving “genuine” diversification
Asset class correlations are dynamic and change over time, so will not always provide diversification
A degree of flexibility is needed to achieve genuine diversification throughout the cycle – think about investment ideas rather than asset classes
Within the Invesco Global Targeted Returns Fund we integrate risk and fund management to enable us to achieve both our return and risk objectives.
Investing in ideas
27
Source: Invesco, as at 30 June 2015.
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Risk warnings
The value of investments, and income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
The fund will invest in derivatives (complex instruments) which will be significantly leveraged resulting in large fluctuations in the value of the fund.
The fund may hold debt instruments which are of lower credit quality and may result in large fluctuations of the value of the fund.
The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management.
Please refer to the most up to date relevant fund and share class-specific Key Investor Information Document (KIID) for more information on our funds. For a complete set of risks please consult the current prospectus.
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Appendix
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Invesco Global Targeted Returns FundBusiness update
Invesco Perpetual
Part of Invesco Ltd (AUM €720.5 bn1)
Based in Henley-on-Thames
Assets under management (AUM): €119.2 bn2 (Including retail, offshore and institutional assets)
Invesco Global Targeted Returns Fund
Managed by the Invesco Perpetual Multi Asset team
Launched on 18 December 2013
Performance: +11.74%3 from inception to 31 July 2015
Assets under management: €6,881,454,7044 across three domiciles; including €1,754,493,4824 in the LUX-domiciled fund
30
Past performance is not a guide to future returns.Source: Invesco Perpetual. 1As at 30 June 2015.2As at 30 June 2015.3Cumulative. Inception date 18 December 2013. Fund performance figures are shown in euro on a mid-to-mid basis, inclusive of reinvested income and gross of the ongoing charges and portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. 4As at 31 July 2015.
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An experienced Multi Asset TeamCore investment team with broad multi discipline support
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Source: Invesco Perpetual as at 31 July 2015. Years of experience subject to rounding.
A team of macro specialists solely focused on the Invesco Global Targeted Returns Fund
Years of experience
David Millar, FIA: Head of Multi Asset, Fund Manager 27
Dave Jubb, FIA: Fund Manager 33
Richard Batty, PhD: Fund Manager 20
Gwilym Satchell, PRM: Risk Manager 7
Georgina Taylor: Product Director 15
Clive Emery: Product Director 18
Danielle Singer, CFA: US-based Product Director 14
Saul Shaul: Fund Analyst 9
Steve Hawes: Research Analyst 5
Mike Marshall, CFA: Risk Analyst 9
Invesco: Broad multi discipline support
Investment Expertise
Invesco Ltd.’s Chief Economist
62 Henley-based investment professionals
More than 750 Invesco investment professionals worldwide
Invesco Infrastructure
Governance
Dealing
Operations
Marketing Support
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APT outputRisk contribution
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Source: Invesco as at 31 July 2015. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change.
Credit - European Curve Flattener Credit - High Yield
Currency - Indian Rupee vs Chinese Renminbi Currency - Japanese Yen vs Korean Won
Currency - Norwegian Krone vs UK Pound Currency - US Dollar vs Canadian Dollar
Currency - US Dollar vs Euro Equity - European Divergence
Equity - Global Equity - Selective Asia Exposure
Equity - Sell Puts as Long German Equity Equity - Sell Puts as Long Japanese Equity
Equity - UK Equity - US Large Cap vs Small Cap
Equity - US Staples vs Discretionary Interest Rates - Australia vs Europe
Interest Rates - Australian Short Rates Interest Rates - European Curve Steepener
Interest Rates - Selective EM Debt Interest Rates - Sweden vs Europe
Interest Rates - UK Volatility - Asian Equities vs US Equities
Volatility - Australian Dollar vs US Dollar Volatility - UK Equity vs Rates
Risk off
Partial risk off
Neutral
Partial Risk on
Risk on
Credit
Equity
Currency
Interest Rates
Volatility
Australia
Asia
Canada
China
Europe
EM
Germany
Global
India
Japan
Korea
Norway
UK
US
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APT outputAssessing each individual trade and its contribution to the risk of the portfolio
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IdeaIndependent
riskRisk
impactMarginal
riskEquity
correlationPosition
SizeLong Short
Size type
Credit - European Curve Flattener 0.78 0.33 0.41 0.45 42.4% 42.4% 42.4% rv
Credit - High Yield 0.56 0.04 0.09 -0.35 -3.2% 18.6% 21.8% net
Currency - Indian Rupee vs Chinese Renminbi 0.73 0.33 0.39 0.43 15.8% 15.8% 15.8% rv
Currency - Japanese Yen vs Korean Won 0.52 -0.18 -0.14 -0.48 5.4% 5.0% 5.4% rv
Currency - Norwegian Krone vs UK Pound 0.39 0.07 0.09 0.23 4.0% 0.8% 3.2% rv
Currency - US Dollar vs Canadian Dollar 0.01 0.00 0.00 0.40 21.6% 21.6% 20.9% net
Currency - US Dollar vs Euro 0.43 -0.01 0.02 -0.36 5.4% 8.3% 2.9% net
Equity - European Divergence 0.77 0.41 0.47 0.71 4.3% 11.2% 6.9% net
Equity - Global 0.54 0.30 0.33 0.53 2.9% 11.7% 8.8% net
Equity - Selective Asia Exposure 0.70 0.24 0.31 0.18 3.6% 8.3% 4.7% net
Equity - Sell Puts as Long German Equity 0.45 0.22 0.25 0.72 2.9% 0.2% 3.1% net
Equity - Sell Puts as Long Japanese Equity 0.23 0.07 0.08 0.65 3.3% 0.2% 3.5% net
Equity - UK 0.69 0.14 0.20 0.06 1.5% 11.5% 10.0% net
Equity - US Large Cap vs Small Cap 0.48 -0.07 -0.04 -0.22 5.8% 5.6% 5.8% rv
Equity - US Staples vs Discretionary 0.49 -0.10 -0.06 -0.42 5.3% 5.3% 5.2% rv
Interest Rates - Australia vs Europe 0.57 0.02 0.07 0.06 8.4% 6.9% 8.4% rv
Interest Rates - Australian Short Rates 0.26 0.06 0.07 0.08 19.5% 19.5% 19.5% rv
Interest Rates - European Curve Steepener 0.49 0.10 0.14 0.08 25.1% 25.1% 10.0% rv
Interest Rates - Selective EM Debt 0.66 0.31 0.36 0.56 5.0% 5.0% 0.0% rv
Interest Rates - Sweden vs Europe 0.43 0.08 0.10 0.14 20.0% 19.9% 20.0% rv
Interest Rates - UK 0.74 -0.03 0.05 -0.13 46.9% 31.9% 46.9% rv
Volatility - Asian Equities vs US Equities 0.60 0.19 0.24 0.44 13.1% 13.0% 13.1% rv
Volatility - Australian Dollar vs US Dollar 0.62 -0.08 -0.02 -0.33 17.8% 17.8% 17.8% rv
Volatility - UK Equity vs Rates 0.12 0.02 0.02 0.40 2.0% 1.8% 2.0% rv
Residual FX & Cash* 0.08 0.02 0.02 0.19 37.0% 37.0% 0.0% net
Source: Invesco as at 31 July 2015. Sum of representative idea sizes: 315.8%. Definitions: Independent risk: The risk of the idea in isolation. Risk impact: The change in the portfolio’s risk as a result of adding the idea to the portfolio. Marginal risk: The attribution of the overall portfolio volatility to each idea. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change. The contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospective information availability may cause changes. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. 1Global equity represented by MSCI World Index.
% of global equity1
Portfolio volatility 3.43 29.16% Fund Value 1,765,882,934.97
Sum of independent risk 12.35 105.09% 99% 1 month VaR 2.30%
Equity beta 0.16 Cash cover req. 8.33%
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Invesco Global Targeted Returns FundContribution by investment idea
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Source: Barclays Point. Data is to end June 2015. The contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospective information availability may cause changes. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. POINT Portfolio Return is calculated by the attribution system, Barclays POINT, using a portfolio constructed by a daily feed of positions and may differ from the gross return.
Contribution (bp, gross)
Investment ideas Q3 2014 Q4 2014 Q1 2015 Q2 2015Credit - European Curve Flattener -22 24 39 -44
Credit - European Financials -3 n.a. n.a. n.a.
Credit - High Yield 4 6 25 11
Currency - Brazilian Real vs Chilean Peso 10 n.a. n.a. n.a.
Currency - Indian Rupee vs Chinese Renminbi -5 -2 3 -5
Currency - Japanese Yen vs Korean Won n.a. n.a. -4 -9
Currency - Norwegian Krone vs UK Pound 7 -74 -16 -8
Currency - US Dollar vs Canadian Dollar 47 38 49 7
Currency - US Dollar vs Euro 63 27 79 -15
Equity - EM vs US n.a. n.a. n.a. -24
Equity - European Divergence -13 35 12 -35
Equity - Global 3 9 36 -1
Equity - Selective Asia Exposure -17 57 -97 40
Equity - Sell Puts as Long German Equity -2 1 10 -7
Equity - Sell Puts as Long Japanese Equity n.a. n.a. 2 15
Equity - Sell Puts as Long US Equity 8 24 14 n.a.
Equity - UK 10 53 63 28
Equity - UK vs Switzerland -36 -21 14 n.a.
Equity - US Large Cap vs Small Cap 39 -21 -20 -3
Equity - US Staples vs Discretionary n.a. n.a. n.a. -10
Interest Rates - Australia vs Europe n.a. n.a. -34 13
Interest Rates - Australian Short Rates 6 8 n.a. n.a.
Interest Rates - European Curve Steepener 38 4 n.a. n.a.
Interest Rates - Japanese Curve Flattener 4 81 13 -9
Interest Rates - Selective EM Debt 8 23 14 -34
Interest Rates - Sweden vs Europe 8 31 19 n.a.
Interest Rates - UK n.a. 28 11 -26
Interest Rates - UK vs France 16 35 -43 n.a.
Interest Rates - US Duration 26 107 74 n.a.
Interest Rates - US vs Europe -4 -16 n.a. n.a.
Volatility - Asian Equities vs US Equities -6 23 -33 42
Volatility - Australian Dollar vs US Dollar -8 -29 33 10
Volatility - Chinese Equities -10 -46 n.a. n.a.
Volatility - UK Equity vs Rates -13 -18 -3 -49
Cash & Residual FX* -30 -19 18 -24
Total quarterly fund returns (gross) 129 367 280 -137
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Portfolio changesA slowly evolving portfolio
35
Source: Invesco Perpetual as at 31 July 2015. For illustrative purposes only. Portfolio characteristics may change without any notice.
Port
folio R
evie
w a
nd O
vers
ight
Q4 2014
+
-
-
-
Inflation – Short UK
Interest Rates – Short Australian Rates
Interest Rates – US vs Europe
Interest Rates – European Curve Steepener
Q1 2015
+
+
+
-
-
-
-
-
-
o
Equity – Sell Puts as Long Japanese Equity
Interest Rates – Australia vs Europe
Currency – Japanese Yen vs Korean Won
Equity – Sell Puts as Long US Equity
Equity – UK vs Switzerland
Interest Rates – US Duration
Interest Rates – UK vs France
Interest Rates – Sweden vs Europe
Volatility – Chinese equities (rolled into Selective Asia equity)
Interest Rates – Selective EM Debt: added Mexican 10-year govt bonds
Q2 2015
-
o
+
+
o
Interest Rates – Japanese Curve Flattener
Equity – European Divergence: removed options on German and French equity indices
Equity – EM vs US
Equity – US Staples vs Discretionary
Inflation – Short UK becomes Interest Rates – UK
Q3 2015 to date
+
+
+
-
Interest Rates – Australian short rates
Interest Rates – Sweden vs Europe
Interest Rates – European Curve Steepener
Equity – EM vs US
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Clear focus on high quality conviction investingHistorically Lead to good client outcomes
36
Source: Invesco Perpetual as at 31 July 2015.
1%
18%
2%
12%
15%
1%
11%
54%
23%
36% 10%
33%
44%
63%
77%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
YTD 1 Year 3 Years 5 Years
4th Quartile 3rd Quartile 2nd Quartile 1st Quartile
Invesco Perpetual + Henley GPR Asset Weighted Performance to 31 July 2015
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Our risk management process
37
GPMR = Global Performance Measurement and Risk. For illustrative purposes only.
CIO Oversight
Governance of the fund
Oversight of the investment process
Independent Risk Function
Independent risk analysis
Independent risk challenge
Review and Oversight
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Invesco Global Targeted Returns FundPortfolio physical investment
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1Cash is expected to be 30-50% of the portfolio, but may be as high as 75%. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 July 2015, subject to change.
Strategies
The Multi Asset team has direct access to the fund management capabilities of its Henley-based colleagues and of the broader Invesco group. The Invesco Global Targeted Returns Fund will generally hold between 50-70% of its assets in strategies from within the Invesco Perpetual and Invesco range.
Ideas currently expressed through strategies include:
Equities European Divergence
Credit High Yield
Equities Global
Equities UK
Equities Selective Asia
Cash1
The cash holdings are used as collateral against derivative positions which are used to implement fund ideas and manage risk.
Cash will be managed by Invesco Global Liquidity, please refer to slide 35 for more information
Managed by Invesco Fixed income– Counterparty exposures limited – Global Credit Research team
Cash
Funds/strategies
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Cash managementInvesco Global Liquidity
Invesco Global Liquidity has US$72.3 billion in assets worldwide
The senior investment team has worked together for over a decade
The cash allocation pool will be invested in money market instruments
39
Source: Invesco as at 31 July 2015. Where the investment team has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
The Global Liquidity team aims to achieve:
Preservation of principal Liquidity Yield
Credit risk is mitigated by investing in a portfolio of high quality and well diversified short-term debt instruments, supported by an independent credit approval and monitoring process.
The “approved list” requires a minimum short-term credit rating of A1/P1/F1.
Market risk is mitigated by limiting the weighted average maturity of the portfolio to a maximum of 60 days.
Liquidity risk is mitigated by holding a high proportion of cash in overnight deposits and liquid money market securities.
Where appropriate, high quality European bills may be used.
The aim is to achieve a balance between liquidity and yield. Due to the use of commercial papers and certificates of deposit, the cash portfolio should generate a slightly higher yield than overnight deposits.
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Collateral ManagementReducing counterparty risk
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1. Introduction Invesco has a collateral policy to reduce counterparty risk on OTC derivatives
transactions
2. Collateralrequirements
Invesco requires collateral for the following types of transactions: stock lending, reverse repurchase transactions, and OTC derivative transactions
In practice, Invesco will generally only accept cash as collateral on OTC derivative transactions
OTC derivative transactions won’t trigger automatic collateral payments and will be based on appropriate materiality levels, therefore no initial margin exchanged
Daily check on concentration and spread rules by portfolio ops; additional reporting provided to compliance and IRF
3. Collateral coverage
In relation to OTC derivatives we operate a minimum transfer amount under the Credit Support Annex (CSA) where applicable:
– The fund will obtain or pay collateral where the netted unrealised gain or loss is greater than 250,000 in the base currency of the fund
– For smaller funds, where 250,000 is significantly more than 0.5% of the NAV, a smaller amount can be agreed and specified in the CSA
Where the fund is in receipt of collateral or where collateral is re-invested for more than 20% of NAV then additional checks will need to be completed to ensure compliance with ESMA guidelines
4. Stress testing
Stress tests on the liquidity of the collateral to be implemented if collateral exceeds 30% of the fund’s NAV
Liquidity stress tests are performed in line with portfolio liquidity stress tests by GPMR
5. Re-investment of collateral
Cash collateral received as a result of transactions in OTC derivatives contracts will be held at the custodian of the fund
Any cash collateral re-invested is done so in line with the ESMA guidelines
For illustrative purposes only.
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Source: Invesco as at 31 December 2014. For illustrative purposes only.
Operating platform
41
Process & Controls: Company Boards; CIO Challenge Process; Daily, Monthly & Quarterly Risk Reviews (RPLS); IP Management
Group; Regular Broker Review; Internal Audits; Compliance Monitoring; Dealing Commission Committee; TCF Training & Scorecards; Derivatives Committee; New Instruments Committee; Departmental Procedures; Breach Reporting; Counterparty Risk Committee; Global Trading Oversight Committee (GTOC)
Process & Controls: Annual Appraisals & Development Plans; Recruitment Process; Continual Professional Development; Regulatory Training; Resource & Succession Planning; Remuneration Policy; Conduct / Ethics Policies; Segregation of Duties
IT Applications: Peoplesoft; Plateau; Success Factors; SharePoint; Complinet
Broker Approval & Set Up ProcessTrade by Trade Broker Assessment
Trade Execution PolicyBroker Contracts / MiFID / ISDA
Transaction Cost AnalysisMatching & Confirmation process
IM Procedures
RESOURCING
TRADE EXECUTION
Workflow StepsSystemsProcess & Controls
Workflow Steps Systems Process & Controls
P2CRD
ApolloAPT
BloombergFMC
MatLabDatastream
CRDFMC
CRDP2
FMCBWISE
CRDFMC
BloombergSWIFTOMGEO
CTM
BNYMCADISFMC
GlobeOp
FMCBNYM /
InvestOneApollo
CRDJPM TRAC
BWISEStatPro
Counterparty Risk DB
RCBanken
Portfolio Valuation / Modelling Tool Fund Manual / POM / IPG
Derivative FormsBank Loan Checklists
Data automationFM Daily /Weekly sign off
Derivative MatrixOverdraft monitoring
Notification of strategy/ideaPre Trade risk analysis
IM ProceduresAllocation Policy
CRD Access SegregationTrade entry controls
IM Procedures
FM Sign Off of unquoted / illiquid securities
Quarterly Pricing CommitteeFair Value policy
Fund Manager weekly & Monthly Review and Sign Off
GlobeOP v BNYM Pricing Validation
Pre Trade Alerts Breach RecordingPre Trade BlocksStock Availability
checksCompliance Approvals
IVZ Restricted list
Daily Reconciliations of Cash & Stock to Custodian / BankWeekly Market
Reconciliation IP / BNYMOversight of Swing
PricingFund Manager Reviews
and Sign off
Daily Post Trade checks against Regulatory and Investment Restrictions
Daily IRF Checks to RPLS/Derivatives
MatrixBreach Reporting to
Management & Board
OVERSIGHT
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CIO ChallengeThe CIO Challenge covers the following areas of focus
42
1Performance Performance against relevant peer groups and indices on a discreet and
cumulative basis. Performance dispersion.
Systems: Lipper, Morningstar, Statpro Composites
2Assets, Flows & Liquidity Information relating to assets managed, subscriptions, redemptions, net
flow, liquidity of underlying portfolio to trade to cash.
3Attribution/Contribution Attribution showing the relative contribution to performance. For equity
this could be measured at Country, Industry, Sector and stock level. For Fixed Income portfolios this could be measured to show contribution by credit rating, duration, issuer and issue
4Risk Risk reward charts and total fund level. Risk reports showing tracking
error, beta, highest marginal contribution to risk by stock etc
5Financial Attributes Analysis showing the style tilts of the portfolio to value, growth,
momentum, yield etc.
6Active Positioning Information relating to active positions by Country, Industry, Sector,
Stock for equities. For Fixed Income active positions by credit, duration, industry and issuer.
7Transaction Analysis Portfolio activity over the period under review including charts of
purchase/sale activity relative to stock price movements.
8Stock Analysis Individual stock analysis often using broker research to challenge the
decisions made by a Fund Manger at a very granular level.
For illustrative purposes only.
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Strategy notificationsThe Multi Asset team includes the IRF in its notification emails to enable the IRF to effectively identify and analyse complex, multi-legged derivative transactions after they are executed
Investment risk meetingsThe Multi Asset team, the Investment Oversight team and the IRF meet at least monthly
Fund manager reviewsThe IRF meet with fund managers on a quarterly basis to discuss the key risks of their portfolios
Independent Risk Function (IRF)Monitoring
43
For illustrative purposes only.
In
dep
en
den
t ris
k f
un
cti
onDerivatives oversight
The IRF conduct monitoring of executed derivative transactions on an on-going basis and to provide regular reporting/escalation to the Derivatives Committee
APT risk reportThe IRF have access to APT and run a daily report for market risk analysis purposes so as to identify any emerging risks early on
Risk profile & limit systemThe IRF, on a daily basis, monitor the risk limits for market risk, liquidity risk, the sum of the notionals of all derivatives used and counterparty risk
Daily
Monthly
Quarterly
Daily
Monthly
Quarterly
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Market RiskRisk Profile & Limit System (RPLS)
For illustrative purposes only.
Green Yellow Amber Red
Absolute VaR <5.5 ≥5.5 ≥7.5 ≥20
Strategy Relative Volatility (upper bound) <120 ≥120 ≥133.33 N/A
Strategy Relative Volatility (lower bound) >80 ≤80 ≤66.67 N/A
Fund Relative Volatility <40 ≥40 ≥50 N/A
The RPLS includes internal risk limits developed by the Independent Risk Function in consultation with the fund manager taking into account the fund’s investment objectives/strategy and risk profile.
In addition to Absolute VaR, the RPLS includes three further risk metrics computed by APT:
a) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) –upper bound;
b) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) –lower bound; and
c) the portfolio’s (total, diversified) Relative Volatility vs. the MSCI World Index (GBP).
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Liquidity RiskMonitored by GPMR using RC Banken system
Based on outflows (historical data or scenarios) and holdings
Largest 1/5/10 days outflows at a 90 to 99.9% confidence level (using Generalized Extreme Value Distribution)
For each security, a bid-ask spread from a variety of sources:– In Normal Market Conditions– In Fire Sale Market Conditions
Outputs of the model: portfolio breakdown by liquidity level, liquidity ratios, losses given the net outflows
45
For illustrative purposes only.
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Team biographies
David Millar: FIA, Head of Multi Asset and Fund Manager
Based in Henley-on-Thames, David joined Invesco Perpetual in January 2013 and heads the Multi Asset team. After commencing his investment career with Scottish Widows in 1989, where he qualified as an actuary, David joined the Fixed Interest team at Scottish Widows Investment Partnership in 1996, becoming Head of Bond Strategy and chair of their Bond Policy Group. In 2008, he joined Standard Life Investments as Investment Director in their Multi-asset investing team. He was one of the portfolio managers within their Global Absolute Return Strategies capability and was chair of their Bond Investment Group. David holds a BSc (Hons) in Mathematical Statistics from the University of Cape Town and is a Fellow of the Institute and Faculty of Actuaries.
46
Source: Invesco as at 30 June 2015.
Richard Batty: PhD, Fund ManagerBased in Henley-on-Thames, Richard joined Invesco Perpetual in March 2013, and serves as a fund manager for the Multi Asset team. Previously, he had worked at Standard Life Investments since 2003 where he was the Global Investment Strategist in their Strategy team which is now part of Standard Life’s Multi-asset Investing team, gaining additional responsibilities for Global Tactical Asset Allocation in 2012. Prior to joining Standard Life Investments, he began his investment career at James Capel/HSBC as an equity strategist in 1995. During this part of his career, Richard became a highly-rated, senior member of its industry renowned Economics and Strategy group. In 1994, he was awarded a PhD in Financial Economics from Brunel University, where he was a part-time research assistant and taught both graduate and undergraduate students.
Dave Jubb: FIA, Fund Manager
Based in Henley-on-Thames, Dave joined the company in March 2013, and serves as a Fund Manager for the Multi Asset team. Prior to this, he worked at Standard Life Investments where he was an Investment Director, Multi Asset Investing, and was one of the fund managers of the firm’s Global Absolute Return Strategies capability. Dave joined Standard Life Group in 1982 as a computer programmer and after a period in the Actuarial Department of Standard Life Canada, he joined Standard Life Investments where he held positions as a fixed income fund manager and strategist before joining their Multi-asset Investment team in 2006. Dave graduated from St Andrews University in 1982 with a BSc (Hons) in Mathematics and is a Fellow of the Institute and Faculty of Actuaries.
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Team biographies (continued)
Gwilym Satchell: PRMTM Risk ManagerBased in Henley-on-Thames, Gwilym joined the company in March 2013. Prior to this, he commenced his career in 2008 at Standard Life Investments, where he was involved in Multi-asset Investing risk management, in particular the development of scenario analysis techniques. In addition, he was responsible for managing a range of liability-driven investment (LDI) funds. Gwilym holds the PRM™ designation which is an independent validation of skills and commitment to the highest standard of professionalism, integrity, and best practices within the risk management profession. He graduated from Warwick University in 2005 with a degree in Computer Science, and gained a Masters degree at the University of Edinburgh Business School in 2008.
47
Source: Invesco as at 30 June 2015.
Georgina Taylor: Product DirectorBased in Henley-on-Thames, Georgina joined our company in June 2013 and is the Product Director for the Multi Asset team. Georgina commenced her career with HSBC in 2001 as an Equity Strategist. She went on to join the Equity Strategy team at Goldman Sachs in 2004 where she wrote global equity and asset allocation research. Georgina gained asset management experience at Legal & General Investment Management, contributing to the overall asset allocation outlook for the firm and multiasset funds. Before joining Invesco Perpetual Georgina was head of Equity Strategy, EMEA, at State Street Global Markets, producing and presenting on asset allocation and equity research. Georgina holds a BSc (Hons) in Economics from the University of Bath.
Danielle Singer: Senior Client Portfolio ManagerBased in New York, Danielle joined the company in June 2014, and serves as a Senior Client Portfolio Manager for Invesco Perpetual’s Multi Asset team on their US strategy. Before joining the company, Danielle was a strategist and director of Global Investment Solutions (GIS) team at UBS, where she was involved in the review and setting of multi-asset and currency strategies,interacting with the investment team to coordinate investment strategy, and assisting clients as part of the GIS initiative. Previously, Danielle was an account manager for UBS’s Institutional Investment Management group. Prior to joining UBS in 2004, she worked on the auction rate securities desk at Deutsche Bank. Danielle earned a BA degree at Middlebury College and an MBAat the University of Chicago with concentrations in analytic finance and econometrics. She holds the Series 3, 7 and 66 registrations. Danielle is also a CFA® charterholder and a member of the New York Society of Security Analysts.
Clive Emery: Product DirectorBased in Henley-on-Thames, Clive joined the company in July 2015 and serves as a Product Director for the Multi Asset team. Clive commenced his career with Merrill Lynch in 1997, where he advised asset managers on European Equities. In 2004, he joined Dresdner Kleinwort Benson as a Director in their Equities Division becoming the Head of their Equity Hedge Fund team in 2005. He went on to join Société Générale in 2007 as the Head of their Equity Hedge Fund Advisory team. Clive graduated from the University of Exeter in 1995 with a BSc (Hons) in Economics & Politics and in 1997 he gained a Masters from the London School of Economics in the Politics & Economics of Transition for Eastern Europe.
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Team biographies (continued)
48
Source: Invesco as at 30 June 2015.
Simon Ferguson: CFA, Senior Dealer, Alternatives and Foreign ExchangeBased in Henley-on-Thames, Simon Ferguson joined Invesco in 2013 as a senior trader on the Alternatives and FX Trading desk, covering global derivative markets. Simon was previously a co-portfolio manager at Cayuga Capital, starting in July 2010 and implementing investment views through derivative instruments across the equity, fixed income, credit, FX and commodity markets. From 2002, he worked for Hermes Investment Management, running the Tactical Asset Allocation Overlay for the British Telecom pension scheme. Prior to that, Simon worked for a number of sell-side firms from 1993, including Goldman Sachs, Schroders and Julius Baer (Paris). Simon graduated from the University of Wales, Bangor, with a first-class degree in Economics. Simon also holds the Chartered Financial Analyst designation and has recently passed the Chartered Institute for Securities & Investment Level 4 Derivatives (IAD) exam.
Saul Shaul: Fund AnalystBased in Henley-on Thames, Saul joined the company in May 2012 as an IT contractor working in front office IT and was later assigned to the implementation project working on the technical build of Invesco Perpetual’s Multi Asset investment platform. In January 2014 Saul joined the Multi Asset team as a fund analyst. Saul commenced his career in front office IT in 2006 and hasworked as an IT contractor on several projects involving Fund Management and Trading systems. He graduated from The University of Portsmouth in 1998 with a degree in International Finance and Trade.
Steven Hawes: Research AnalystBased in Henley-on-Thames, Steve joined the company in July 2010, and since January 2014 has served as a Trainee Analyst within the Multi Asset team. Steve joined Invesco Perpetual as a Client Services Executive, specialising in investment performance. He graduated from the Sheffield Hallam University in 2010 with a BA (Hons) in Business and Financial Services and passed the Investment Management Certificate (IMC) in January 2013.
Mike Marshall: CFA, Risk AnalystBased in Henley-on-Thames, Michael joined the company in June 2013, and since March 2015 has served as a Risk Analyst within the Multi Asset team. Michael joined Invesco Perpetual as a Senior Valuations Analyst and subsequently managed the OTC Derivatives and Alternatives team, reporting to the Head of EMEA Portfolio Services. Prior to joining Invesco Perpetual, he heldvarious Derivative Analyst positions at Tier 1 investment banks and other asset management firms working in a broad range of derivatives-related fields.
Michael graduated from the University of Cape Town in 2006 with a Bachelor of Business Science (Hons) in Finance and Accounting and is a Chartered Financial Analyst (CFA®) charterholder.
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Important information
This marketing document is for Professional Clients in Germany only and is not for consumer use. Please do not redistribute.
It is not subject to German regulatory requirements that ensure impartiality of financial analysis. Therefore, the prohibition of trading before the release of financial analysis does not apply.
This document is not an invitation to subscribe for shares in the fund and is by way of information only. It is not intended to provide specific investment advice including, without limitation, investment, financial, legal, accounting or tax advice, or to make any recommendations about the suitability of the fund(s) for the circumstances of any particular investor. You should take appropriate advice as to any securities, taxation or other legislation affecting you personally prior to investment.
Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. This document should not be construed as investment advice.
The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. Where Invesco has expressed views and opinions, these may change. The information provided on the investments and investment strategy (including current investment themes, the research and investment process, and portfolio characteristics, weightings, and allocation) represents the views of the fund managers at the time this material was completed, and is subject to change without notice.
Past performance is not a guide to future returns.
The fund will invest in derivatives (complex instruments) which will be significantly leveraged resulting in large fluctuations in the value of the fund.
The fund may hold debt instruments which are of lower credit quality and may result in large fluctuations of the value of the fund.
The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management.
The attribution and contribution figures are estimates and should be used for indicative purposes only. Data cleansing and retrospectiveinformation availability may cause changes.
The distribution and the offering of the fund or its share classes in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This is not investment advice and does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. The fund is available only in jurisdictions where its promotion and sale is permitted.
Please refer to the most up to date relevant fund and share class-specific Key Investor Information Document for more information on our funds. Further information on our products is available using the contact details shown.
Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. This marketing document is not an invitation to subscribe for shares in the fund and is by way of information only, it should not be considered financial advice. The performance data shown does not take account of the commissions and costs incurred on the issue and redemption of units. As with all investments, there are associated risks. This document is not financial advice and is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. There may be differences in fee structures, in minimum investment amounts, etc. Please check the most recent version of the fund prospectus in relation to the criteria for the individual share classes and contact your local Invesco office for full details. Please be advised that the information provided in this document is referring to Class A (accumulation- EUR) exclusively.
Germany: This document is issued in Germany by Invesco Asset Management Deutschland GmbH regulated by Bundesanstalt fürFinanzdienstleistungsaufsicht.
49