The group of advisers, which includes head of research at Whitechurch Ben Willis and Chelsea Financial’s managing director Darius McDermott, select what they deem to be the best funds according to their own quantitative and qualitative research.There are three portfolios – Aggressive, Balanced and Cautious – with the latter most appropriate for someone in their mid-50s approaching retirement.
Funds with long and established track records dominate the recommended list for obvious reasons, but the reputation of Millar and his team combined with the fund’s unusual process and strong start have prompted the AFI to act already.
Millar and co-managers Dave Jubb and Richard Batty previously worked on the £19bn Standard Life Global Absolute Return Strategies team, before leaving for Invesco in late 2012.
They have taken many of the strategies used at Standard Life to build a fund that targets annual returns of 3 month GBP Libor +5%, with half the volatility of global equities.
Like GARS, Invesco Perpetual Global Targeted Returns uses market neutral, directional and long baskets of stocks, currencies, bonds and so on to ensure that the fund is able to perform in all market conditions.
Altogether there are 24 such ideas presently, which are combined in such a way to maximise diversification and reduce risk.
Looking at the performance data, it’s so far, so good for Millar and his team: FE data shows the fund has returned 5.54 per cent since launch, outstripping its benchmark by just over 5 percentage points.
The fund has an annualised volatility of 3.87 per cent over the period, compared with 7.68 per cent from the MSCI AC World index.
Performance of funds vs sector and index since 9 Sep 2013
Source: FE Analytics
The fund has beaten its Standard Life rival over the period, although it has been a touch more volatile.
As well as performing well, Invesco has attracted £170m in assets in the relatively short time since inception, including significant amounts from the firms included in the AFI panel.
Willis (pictured) says the fund is a definite and much needed alternative to Standard Life GARS, arguing that there is a case of holding both in a portfolio – as is the case in AFI Cautious.
“It’s definitely an alternative because the managers were integral in setting up the GARS strategy,” he said.
“They’re trying to replicate the success they had at Standard Life, but they have a little more freedom to express their ideas and less constraints from various committees.”
“You always need competition and this was definitely lacking in this area. There’s also a case to hold both in a portfolio to cut down on manager risk.”
Willis says the greater freedom of the Invesco team may lead to the fund being slightly more volatile than GARS.
While some experts point to the smaller size of Invesco Perpetual Global Targeted Returns as giving it an advantage over GARS, Willis isn’t so sure.
“We’ve backed GARS since launch and when it got to £7bn alarm bells did start ringing. However, they’ve assured us that the way they run their portfolio with so many different strategies means that size really isn’t an issue, and we’re in agreement.”
“With the exception of last year when the fund had a big wobble in the aftermath of the Fed’s tapering announcement, we’ve been very happy with performance.”
Performance of fund, sector and index since launch
Source: FE Analytics
Rob Morgan, pensions and investments analyst at Charles Stanley Direct, also welcomes the Invesco fund as much needed competition to GARS.
“One reason for the sustained popularity of GARS is the lack of direct competitors,” he explained.
“It aims to blend uncorrelated investments across various asset classes and geographies together; quite different from most funds in the Targeted Absolute Return sector, which concentrate on a single asset class.”
“However, following the launch of Invesco Perpetual Global Targeted Returns in September, there is now a rival on the scene.”
“As well as a straightforward core of equity and bond funds managed by other teams at Invesco Perpetual, [Millar and his team] use some more unusual strategies. For instance, one position is in Australian interest rate ‘swaps’, a derivatives contract that benefits from rates going up by less than currently expected by the market, reflecting the team’s view that Australian growth is under pressure.”
Other ideas include favouring the US dollar over the Canadian dollar and backing the NASDAQ – the US technology index – over the Taiwanese market.
At the back end of last year, the team implemented a position favouring UK equities over Swiss equities.
“At one level the fund is simple – it invests in a combination of ideas; yet under the bonnet there is a lot going on in terms of implementing each idea through the right investments, sizing positions correctly to maximise diversification and monitoring the correlations between them,” Morgan continued.
“Somewhat unsurprisingly, the fund has a process and portfolio construction similar to GARS'. The major difference is the size of the team. Over 30 people are involved in running GARS compared with only a handful at Invesco. However, the managers seem to relish the opportunity of running a comparatively small and nimble fund.”
“Although there is no track record as such to go on, I believe it is worthy of consideration for investors looking for this type of diversified investment strategy,” he finished.
Invesco Perpetual Global Targeted Returns has an annual management charge (AMC) of 1.4 per cent.
Click here to learn more about absolute return investment strategies, with the FE Trustnet guide to absolute return.
