Millar and co-managers Dave Jubb and Richard Batty launched the absolute return fund to much fanfare earlier this month. It is seen as a direct rival to the £17.8bn Standard Life GARS fund, which the trio previously managed before leaving for Invesco at the beginning of 2013. The Invesco fund will draw on many of the techniques used by Standard Life – namely, directional and market neutral strategies – to help deliver uncorrelated returns to the equity and bond markets. However, speaking exclusively to FE Trustnet, Millar explained that there will be some differences.
“This fund is all about investing in ideas, and then finding ways to implement them,” said Millar. “What we’re trying to do is not easy – delivering Libor plus 5 per cent over rolling three year period is no easy task, but we think the best way to do this is through a selection of ideas that are easy to explain.”
“To do this, we think we have to dispense with asset class labels, which seem to make things even more confusing.”
One of the very few criticisms levelled at Standard Life GARS in recent years has been its complicated structured, with some industry professionals and private investors arguing that the firm hasn’t made explanations of how the fund works readily available to clients. This has been a particular issue during time of underperformance, such as that seen during the recent summer sell-off.
Performance of fund, sector and index in 2013
Source: FE Analytics
FE Trustnet provided our readers with a guide to GARS in reply to these concerns.
When asked whether it was Invesco’s intention to make the Global Targeted Return fund more transparent, Millar said:
“I don’t want to hear anyone say down the line ‘this fund works because it works'. In the same way as people understand Neil [Woodford’s] and Paul [Causer’s] funds, I want people to understand this one.”
Millar says Invesco will be sending out a raft of marketing material to advisers, including a book entitled “Investing in ideas: Art and science in multi-asset.”
He adds that fund factsheets will be detailed, helping investors to understand how and why the positioning of the fund has changed.
“It’s important that advisers are given all the material they need to explain this to their clients. We will be working very hard, travelling all around the country, to make sure everything is clear,” Millar said.
“The education element is very important to us.”
Absolute return funds have come under fire from some quarters of the industry for not performing in line with investor expectations. Millar says that by clearly stating an objective of Libor plus 5 per cent over rolling three year period with half the volatility of global equities, Invesco should escape these criticisms.
Millar says he is glad that the IMA has decided to change the name of the sector to Targeted Absolute Return, because it ensures that investors know that a positive return cannot be guaranteed.
“It is not possible to deliver a positive return without taking on some risk,” he said. “This is why we honed in on the word ‘targeted’ when it came to naming the fund.”
Invesco Perpetual Global Targeted Return has made a solid start since its launch earlier this month, with a positive return of just over 2 per cent. By point of reference, GARS is up 0.6 per cent.
The fund’s correlation to the global equity market has been very low.
Performance of funds and sector since 9 September
Source: FE Analytics
Millar is the first to argue that short term performance is of little importance, and requests that investors judge him over a three year period.
“It’s not about what this fund does over 3 months, or how it does over the easier periods – it’s about how it does over the longer-term,” he said. “It’s about how it does over three years, and how much volatility it has in the process.”
The manager says another attribute that differentiates the fund from other rivals and particularly GARS is his use of “active alpha” when putting the portfolio together.
Standard Life tend to use index trackers when putting their baskets of assets together, but Millar says the ability to use actively managed Invesco Perpetual funds to express his ideas gives him a big advantage.
“At the moment we’re using Stuart Parks’ Invesco Asian Equity fund, because we want to access his stock picking skills,” Millar explained.
“I don’t want broad exposure to the index – I realise Stuart is a very good stock picker with a particular emphasis on the long-term growth of the middle class consumer, which is where I want to be.”
“I have then hedged out the market exposure with a short on the Asian market, so that all I’m left with is Stuart’s active positions.”
“Since then, we’ve had some discussions about India and have decided to remodel the hedge on Stuart’s fund and added back some Indian exposure. This idea we call ‘select Asian equity’.” “It’s new for us using funds, but I see it as a real positive. I don’t know any other product like ours that does it this way.”
“Is this an evolution of what we did before [at Standard Life]? Yes, I suppose it is,” he added.
Millar says he will meet with the entire Invesco Perpetual management team, including heads of teams including Paul Causer, Neil Woodford and Nick Mustoe.
“My team is responsible for knowing what the managers at Invesco are thinking,” he explained. “I want to know what they think of the decisions we make.”
“Monday morning will be my first review meeting with them, and I’ll ask them what they think of my 22 ideas. We’ll be doing this quarterly,” he added.
Invesco Perpetual Global Targeted Return has a minimum investment of £500 and ongoing charges of 1.6 per cent.
