The Invesco Perpetual Global Targeted Returns fund opened to investors in September 2013 with the aim of achieving a positive total return in all market conditions over a rolling three-year period.
It targets a gross return of 5 per cent a year over UK three-month Libor, with less than half the volatility of global equities.
For the launch, Invesco hired David Millar, Dave Jubb and Richard Batty from Standard Life Investments. All three had worked on the GARS fund and were seen as being instrumental in its success.
GARS, which is managed by Standard Life Investments’ 22-strong multi-asset investment team, has built a strong track record and attracted assets of £21.2bn. This means that the fund accounts for more than half of the money in its sector.
Since its launch in May 2008, the four crown-rated fund has returned 47.72 per cent compared with a 9.6 per cent rise in its Libor GBP six-month benchmark and a 19.38 per cent gain from the IMA Targeted Absolute Return sector.
Furthermore, it has outperformed the FTSE All-Share over this time, which is up 44.79 per cent.
Performance of fund vs sector and indices
Source: FE Analytics
Overall, GARS has succeeded in achieving its absolute return target. It has experienced difficult periods such as in 2008 and June 2013, when all asset classes fell together, but it has tended to make back losses quickly.
So how does the rival Invesco Perpetual Global Targeted Returns compare against this highly regarded fund?
Performance
Invesco Perpetual’s fund appears to have attracted the attention of investors, as assets have already reached £456.1m.
FE Analytics data shows it has gathered inflows of £272.21m over the past six months, making it the sector’s third bestselling fund after GARS and Newton Real Return.
Between launch on 9 September 2013 and 5 September this year, the Invesco fund returned 9.66 per cent – outperforming both the IMA Targeted Absolute Return average of 4 per cent and the FTSE All-Share’s 9.03 per cent.
This is also 2 percentage points higher than the return from GARS, which is up by 7.34 per cent over the same period.
Performance of funds since Invesco GTR's launch
Source: FE Analytics
Volatility and correlation
This performance has come with a little more volatility than the GARS fund, although the score for both is higher than the sector’s 1.94 per cent.
Invesco Perpetual Global Targeted Returns’ annualised volatility is 3.48 per cent since launch, while Standard Life GARS's is 3.35 per cent over the same time frame. Both are significantly less volatile than the FTSE All-Share, which scored 9.79 per cent.
Over the period in question, GARS has also had more success in delivering returns uncorrelated to equities. According to FE Analytics, it has a correlation of just 0.33 to the FTSE All-Share while Invesco Perpetual Global Targeted Returns is 0.6, although both are better than the sector average of 0.68.
Recent activity
Both funds make use of between 20 and 30 strategies designed to create a positive return in all market conditions.
Invesco Perpetual Global Targeted Returns’ latest update said the team introduced a new Japanese interest rates position in July, as it expects the rates curve to flatten in the country.
“While Abenomics has already had the effect of boosting growth and inflation in Japan, it is difficult to know how robust the recovery will be, but we believe the structuring of the idea suits a number of possible outcomes,” the team said.
“For example, the rates curve should flatten if Abenomics is successful and 10-year yields rise more than those further out; or, if Abenomics fails, the Bank of Japan will have to buy bonds further out of the yield-curve, as 10-year yields are so low, buying them would have little impact on growth.”
Looking at GARS’ most recent moves, the fund started a directional strategy that prefers the US dollar over the New Zealand dollar.
“Our analysis shows that on a number of metrics, the New Zealand dollar is one of the most overvalued currencies in the world. Moreover, in our view, the market is anticipating more rate rises from the central bank than are likely to materialise. By comparison, we expect the improving financial landscape in the US will drive the US dollar higher,” the team explained.
Independent opinion
Ben Willis, head of research at Whitechurch Securities, was an early supporter for GARS when it launched and has continued to hold the fund since.
“It’s been great,” he said. “Even though there have been some high-profile departures – the team went to set up the Invesco fund and Euan Munro, who the whole thing was the brainchild of, moved on to Aviva – it’s still managed to generate a consistently good return regardless of how big the fund has got.”
Whitechurch has bought Invesco Perpetual Global Targeted Returns to run alongside GARS in some of its portfolios.
“It’s early days but the fund is doing very well, relatively. I think they have scope to push a bit harder on the ideas they are generating,” said Willis.
“The team has experience of running money in a way like GARS and working to replicate the success of that.”
Willis adds that he is not considering taking money out of GARS, as the fund has served him well since its launch, and there is no reason to look at selling down. But he says there is now a discussion to be had over which of the two absolute return funds he will allocate fresh money to.
“Even though the GARS team may be underperforming over this time period, they are worth sticking with and have earned it really,” Willis said.
“But if the Invesco fund can sustain its outperformance in relative terms, then people will start allocating there a lot more.”
Standard Life Investments Global Absolute Return Strategies has clean ongoing charges of 0.89 per cent while Invesco Perpetual Global Targeted Returns' are 0.87 per cent.
