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Invesco Perpetual Distribution Fund research update

Heather Ferguson | Wed 16 December 2015

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Investors worldwide are seeking investments able to generate a higher yield than the low rates offered on cash. The Invesco Perpetual Distribution Fund generates a monthly income from a portfolio of shares and bonds. It currently yields 4%, although this is variable and not guaranteed.

Summary

Bonds:

The bond portion of the fund is managed by renowned fixed-interest investors Paul Read and Paul Causer, and currently comprises around 58% of the portfolio.

  • The managers expect bond market returns to continue to be modest through 2016.
  • The managers believe many areas of the bond market currently offer limited value and therefore the bond portion of the fund is defensively positioned.
  • They have invested in short-dated bonds, which they view as near-cash positions, in addition to holding 8% of the fund directly in cash. This positioning should offer an element of shelter from any rise in interest rates. In addition, the ease with which the managers can access cash means they are well placed to exploit any new opportunities as and when they arise.
  • Corporate bond exposure is biased towards those issued by banks as the managers feel the industry has made significant progress in repairing balance sheets since the financial crisis. They also believe they are being adequately rewarded with a good level of income for the risk taken.

Equities:

Ciaran Mallon is responsible for the equity portion of the fund, which accounts for around 33% of the portfolio.

  • Ciaran Mallon is cautious in his outlook for the UK economy and therefore seeks to invest in companies whose prospects are not dependant on an improving economic outlook.
  • He favours well-managed companies which offer an attractive and rising dividend.
  • He expects equities to outperform bonds over the medium term. As such, the equity portion of the fund is high relative to the fund's history.
  • Despite a challenging backdrop a number of holdings have recently performed well such as Imperial Tobacco and BT Group.

    BT Group - the company reported strong results in October and announced a 13% increase to the dividend which was positively reflected in the share price. The manager expects growing demand for high-speed broadband to continuing driving profit growth moving forwards.

    Imperial Tobacco - the company benefitted from the acquisition of production facilities when Lorillard and Reynolds American merged. Ciaran Mallon expects this to increase the business’s earnings potential, which could underpin dividend growth.

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Our View

Ciaran Mallon was appointed co-manager of this fund alongside Paul Read and Paul Causer in October 2013. Over his tenure, the fund has risen 7.7%* compared with 8.3% for the IA Mixed Investment 20-60% Shares sector, although past performance is not a guide to the future.

Annual percentage growth
Dec 10 -
Dec 11
Dec 11 -
Dec 12
Dec 12 -
Dec 13
Dec 13 -
Dec 14
Dec 14 -
Dec 15
IA Mixed Investment 20-60% Shares 0% 8.49% 8.87% 5.68% 1.53%
Invesco Perpetual Distribution 0.26% 19.24% 11.79% 5.96% 1.18%

Past performance is not a guide to future returns. *Source Lipper IM to 01/12/2015.

We believe the team has the ability to navigate difficult market conditions given their flexibility to alter the fund's allocation to shares and bonds, which includes higher-risk high yield bonds. We have high conviction in Paul Read and Paul Causer to manage the bond portion of the fund, but we currently prefer to access their expertise through other funds they manage. Although we believe this is a solid option in the IA Mixed Investment 20-60% Shares sector, we currently favour other funds in the sector, which can be found on the Wealth 150 list of our favoured funds across the major sectors.

Please note, the fund's charges can be taken from capital which can increase the yield but also increase the potential for the capital value to be eroded. The manager also has the flexibility to use derivatives which, if used, adds risk.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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