- The managers are relatively cautious about bond markets
- They still see some value in financials bonds
- In the near term they think most returns will come in the form of income
The Invesco Perpetual Corporate Bond Fund benefits from the expertise of Paul Causer and Michael Matthews, two experienced bond investors.
We like their flexible approach. They're willing to invest the fund differently from other funds in the same sector and at times this means performance can look quite different.
They've been cautious in their outlook for bond markets for several years and invested the fund to reflect this view. This means it's tended to hold up relatively well during tougher times for bond markets, as we've seen over the past year. But it held back returns for a few years before this because bond markets performed well.
The managers are prepared to take more risk in search of returns when they feel the time is right. For investors comfortable with this approach we think this is a good fund to consider for exposure to corporate bonds. It remains on the Wealth 150+ list of our favourite funds across the major sectors.
Why are the managers cautious?
We've lived in a low interest rate, low inflation world for a number of years. When combined with support from the world's central banks, this has helped bond markets perform well for several years. And as bond prices have risen, yields have fallen.
Paul Causer and Michael Matthews think this is changing. Global economic growth is showing signs of strength, inflation expectations are picking up, and support from central banks is gradually being reduced. At the same time, bond yields are very low, so prices don't have much room to rise from current levels.
For these reasons the managers still think it's right to be cautious. Their main aim at the moment is to pay investors a relatively attractive income, and provide some shelter compared with peers if bond markets hit a rough patch. The fund currently yields 3.16%, though this isn't guaranteed or an indicator of future income.
How is the fund invested?
The fund is currently invested in a way that means its performance shouldn't be affected as much as other funds in the Corporate Bond sector if interest rates rise. Rising interest rates are generally bad for bonds, partly because it makes the income paid look less attractive. This means some investors sell bonds in search of higher returns, which could push prices down.
Part of the fund is invested in government bonds, short-term bonds and cash. Government bonds are deemed to be relatively safe, because there's less chance of a country going bust than a company. This means they might hold up better than bonds issued by companies when markets fall.
Government bonds are also quite quick to buy and sell. This is useful for when the managers want to sell them to invest in better opportunities.
Most of the fund remains invested in investment grade corporate bonds. The managers have focused on bonds issued by financial companies, including banks. They think banks are in a much stronger position than they used to be, and they should be able to continue to repay bond holders. Some of the fund's biggest investments are in bonds issued by Barclays, Lloyds and Santander. Asset managers, including Standard Life, and insurers such as AXA also feature.
They've also found some US corporate bonds with relatively high yields, so they’ve invested some of the fund in this area. Examples include tech giant Apple and telecoms group Verizon Communications. Remember yields aren’t guaranteed or an indicator of future income.
The fund's performance has been subdued compared with the sector average over the past few years. But the long-term track record is good and over the past ten years the fund has grown 75.3%* compared with 67.1% for the IA £ Corporate Bond sector. Please remember past performance is not a guide to the future. We think the fund has the potential to deliver good long-term returns, although of course there are no guarantees.
Invesco Perpetual Corporate Bond - 10 year performance
Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2018.
|Annual percentage growth|
|June 2013 -
|June 2014 -
|June 2015 -
|June 2016 -
|June 2017 -
|Invesco Perpetual Corporate Bond||7.2%||1.7%||3.1%||6.1%||0.4%|
|IA £ Corporate Bond||6.1%||4.3%||5.9%||6.4%||0.6%|
Past performance is not a guide to the future. Source: Lipper IM to 30/06/2018.
Investors should note the managers have the flexibility to invest in high-yield bonds and use derivatives, which adds risk.