Invesco Tactical Bond: May 2020 update

• Run by experienced managers who have the freedom to decide when to be adventurous and when to play it safe
• Invesco have a strong fixed income reputation and follow a disciplined investing process
• The managers have performed well and have beaten the benchmark over the long term
• This fund is on our Wealth 50 list of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

The managers hope to provide some income and capital growth over the long term and it could form part of a more conservative portfolio. The fund isn’t as income-focused as some bond funds though, so it’s best thought of as a way to diversify a portfolio.

Manager

This fund is managed by talented and experienced management duo Paul Causer and Paul Read who co-lead the fixed interest team at Invesco and are a pair we rate highly. Both managers have over 34 years' investment experience and in this fund, they can invest in all types of bonds, with very few constraints placed on them. We think this gives them the freedom to follow their convictions and deliver good returns for investors.

Process

The managers invest across the spectrum from higher-risk high-yield bonds through to government bonds and cash. They'll also adjust the fund's sensitivity to changes in interest rates. The pair are given a high level of geographical flexibility and are able to use derivatives which if used adds risk.

What's different about this fund is the degree to which the managers shift their investment allocations. They invest wherever they see the best opportunities, including in higher-risk areas such as high yield bonds. It could also mean being defensive when opportunities are few and far between by holding lower-risk bonds and cash.

The managers combine their analysis of the economy and individual bonds to shape the portfolio. We think they're very skilled at this and that's what we think separates them from other managers. The performance of the fund ultimately hinges on the manager’s ability to interpret the bigger economic picture and their success in altering the fund's investments based on what they see.

From April the managers have started reducing government bond exposure and reintroducing more credit risk into the fund. Read and Causer have used the recent glut of bond issuance to add bonds to the fund, including those of Ford, who have recently been downgraded from investment grade status. Further additions have also included BMW, Boeing, Marriot and Expedia.

Culture

The fixed interest team at Invesco, led by Read and Causer, have a strong reputation and follow a clear and disciplined investment process, aiming to achieve the best returns for investors.

They aim to shelter the portfolio when they see tough times ahead; and seek strong returns as more opportunities become available. They’re well-resourced with every opportunity to deliver good long-term performance

Cost

The fund has an annual ongoing charge of 0.75%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.19%. This means you’ll pay a net ongoing charge of 0.56%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The managers' overall track record is very good and they've beaten their benchmark over the long term. In this fund, they often invest very differently to other bond managers so performance can be different too. This means the fund's returns can be a bit more volatile and there will be periods of underperformance. But we ultimately think their skill will reward those who are prepared to take a long-term approach. There's no guarantees though.

The managers have had a cautious outlook for some time and as a result the fund has been positioned defensively. This has meant that the fund has lagged behind the market over the last few years, but more recently it has held up well and provided a positive return in what has been a volatile last year for markets.

So far this year, encompassing the recent coronavirus-related market volatility, the fund has performed ahead of its index, gaining 1.6% compared with a return of -3.4% for the IA £ Strategic Bond peer group*. This is a very short timeframe to compare performance though, and it isn’t a guide to the future. We expect the fund to lag a rising market but think it has the potential to continue to hold up better when the market is falling.

Source: *Lipper IM 01/01/2020-15/05/2020.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

More about Invesco Tactical bond, including charges

Invesco Tactical bond Key Investor Information