- The managers have increased investments in lower-risk bonds
- Recent performance has been disappointing but it’s better over the long-term
- They think US interest rates could be cut further
The managers of Invesco Tactical Bond, Paul Causer and Paul Read, have the flexibility to invest in different types of bonds depending on their view of the world. When they’re optimistic they can invest in bonds they think can benefit from favourable market conditions. When they’re feeling cautious they can invest in bonds they think could provide some shelter from market turbulence.
They’ve followed the latter path for several years, although generally the markets have been more positive than they predicted. Markets have continued to climb, there’s little sign of global inflation, and central banks look likely to resume their market support.
We think the fund still offers useful diversification to a portfolio. The managers place a lot of importance on controlling risk, so it could provide some ballast to more adventurous funds. Causer and Read are both highly experienced managers and we think they’ll do a good job of providing long-term returns while keeping risk in check, although there are no guarantees. You’ll find Invesco Tactical Bond on the Wealth 50 list of our favourite funds.
Where do the managers invest?
The managers invest in bonds that offer better yields than cash and aren’t particularly sensitive to changes in interest rates. They’re also prepared to invest in areas they think are attractively valued. Recently that’s included Italian financial company bonds and selected higher-risk emerging markets like South Africa and Argentina. They also have the flexibility to invest in derivatives, which if used adds risk.
Overall though Causer and Read have invested more cautiously than 12 months ago. They’ve invested more in higher-quality ‘investment grade’ bonds and less in higher-risk investments such as high-yield bonds and emerging markets.
They’re more positive on prospects the other side of the pond. The portfolio’s US exposure has roughly doubled in the past year from around 20% to nearly 40%. That’s been at the expense of investments in bonds from European countries like the UK and Germany.
How’s the fund performed?
The managers’ cautious approach has not worked well recently. The market has rewarded more optimistic investors and so the fund has fallen behind the IA Strategic Bond peer group. While disappointing, we expect the fund to perform better over the longer-term, particularly during market wobbles, though there are no guarantees.
The fund’s normally lagged rising markets but done relatively well during market falls. Over the long term that’s helped the fund beat its peer group index. Since the fund launched in February 2010, Causer and Read have grown it 55.7%, compared with the IA Strategic Bond’s 54.8%* growth. Past performance is not an indication of future performance.
Invesco Tactical Bond – performance since launch
Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2019
|Annual percentage growth|
| Jul 14 -
| Jul 15 -
| Jul 16 -
| Jul 17 -
| Jul 18 -
|Invesco Tactical Bond||1.6%||2.2%||3.7%||-0.5%||1.4%|
|IA £ Strategic Bond||3.0%||4.8%||4.6%||0.1%||5.7%|
Past performance is not a guide to the future. Source: Lipper IM to 31/07/2019
Some economic commentators see a global recession looming, but the managers are more sanguine. While they don’t think worldwide growth will be as high as in recent years, they see a growth-pause scenario rather than a growth-reversal one. If there is a recession though, they believe it’ll actually be a good thing for most bonds.
Causer and Read think the US Federal Reserve will follow up on their recent interest rate cuts by cutting them further, which should see a rise in bond prices. They also think there will be some relief from international trade wars as Trump won’t want any economic trouble leading up to the next US election.
On Brexit, the managers think it’ll be a defining moment for the UK but only in the short term. Sterling has been punished too heavily by the markets in their view, and they expect the currency to rise sharply if there’s any sort of Brexit deal.