Effective 31/07/16, gas oil, natural gas, crude oil, heating oil and unleaded gasoline were added to the commodity allocation to enhance portfolio diversification.
Summary of Objective
The fund’s objective is to provide total return with low to moderate correlations relative to traditional financial market indices, by gaining exposure to three asset classes: debt securities, equities and commodities. The overall risk of the Fund is intended to be consistent with that of a balanced portfolio of equity and debt securities. For the full objectives and investment policy please consult the current prospectus.
Market Background
July saw a revival of equity strength on the back of promises of easy policy from central banks. Government bond markets continued to post gains as renewed signs of economic malaise were released during the course of the month and as investors sought “safe havens” as commodity prices pulled back. Most commodity complexes paused after a solid run that began mid-first quarter. Precious metals were the sole bright spot across the asset class.
Representative Asset Class Performance (for the month of July 2016)
Japanese Stocks 6.67%
US Small Cap Core Stocks 6.07%
Euroland Stocks 4.46%
UK Stocks 3.96%
Hong Kong Stocks 3.90%
US Large Cap Core Stocks 3.73%
Precious Metals 3.04% Industrial Metals 1.94% UK GB 1.91% Australia GB 0.84% German GB 0.41% Canadian GB 0.30% US GB 0.05% Japanese GB -0.21% Agriculture -6.53% Energy -13.65%
Source: Bloomberg and DataStream, as at 31 July 2016. Equities and bonds based on continuous futures return indices. Commodities represented by S&P GSCI sub-indices. An investment cannot be made into an index. All returns denominated in local currencies.
Performance Analysis
The strategy underperformed the benchmark for the period.
Developed market equities led results for the month despite signs of economic weakness. For example, in the US, second quarter GDP came in much weaker than expected and first quarter GDP was revised lower from an already weak
estimate. The weakness in economic data and uncertainty about the lasting impacts of the Brexit vote had market participants anticipating additional stimulus measures out of Japan and Europe and expectations that the Fed would leave interest rates unchanged during the July meeting. This created buying pressure across all six markets in which we invest with gains ranging from the high 3% to high 6% range.
Most bond markets also posted gains during the quarter as the weak economic data and indications of additional central bank stimulus allayed fears of rate increases over the foreseeable future. Further aiding results was a pullback in returns in commodity returns which pushed yields lower as investors sought shelter from the volatility. Returns across our four exposures ranged from a high of 1.91% for UK Gilts to 0.30% for Canada government bonds.
Stocks
Bonds
2 Invesco Balanced-Risk Allocation Fund
buying and a late month price spike triggered by the Fed deferring on a rate increase as well as a weak US GDP report. Energy was the largest detractor. Oil prices plummeted when the EIA (Energy Information Administration) reported US crude stockpiles remain at record highs. Higher oil stocks are leading to lower gasoline prices as rising rig counts and growth in inventories are adding to the existing global supply glut. Additionally, the Fed’s decision to not raise interest rates added to concerns over softening demand, despite alleviating some pressure from a rising US dollar. Agriculture prices also detracted as soybeans and soymeal gave back some of their large gains posted during the second quarter. Following a lot of worry over the impact of dry weather on crop yields and quality in the US, the USDA (United States Department of Agriculture) issued a report revealing not only favorable crop conditions, but also that there was significant improvement in many states. Cotton was a standout performer on declining global production and rising expectations for US exports. Industrial metals prices closed the month slightly down as aluminum fell on weaker indicated demand from large mining companies and ongoing high Chinese production. Copper edged out a gain due to higher Chinese imports and with a Fed inspired boost as rates remained unchanged.
In aggregate, tactical positioning aided results as overweights across equity markets, precious metals and select bond markets outweighed the drag from overweight positions across energy, industrial metals and agricultural commodities.
Performance (A Shares, accumulation, in EUR, net of fees, inception date 1 September 2009)*
1 Month Months 3 1 Year (Annualised) 3 Years (Annualised) 5 Years
Since Inception (Cumulative) Maximum Drawdown Since Inception Volatility Since Inception** Fund 1.27 5.21 5.28 4.09 4.54 59.60 -10.21 7.06 60% MSCI World (EUR Hedged)/ 40% JPM Glbl Govt Bond Europe# 2.69 4.10 1.12 8.19 9.03 76.00 -10.08 7.82 *Source: DataStream, Invesco Global Asset Allocation, as at 31 July 2016. Past performance is not a guide to future returns. The figures do not reflect the entry charge payable by individual investors.
**Standard deviation based on daily returns and a 250 trading day year
#Previous Benchmark: MSCI World index (EUR) up to 29 November 2015. The performance shown illustrates solely the current reference index and does not consider the previous reference index.
5.30% 13.30% 11.65% 7.13% 1.12% 5.89% -5.10% 10.07% 7.00% 5.78% 7.35% -0.39% 12.70% 16.24% 11.79% 2.33% 3.83% 8.52% -10% -5% 0% 5% 10% 15% 20%
2009 2010 2011 2012 2013 2014 2015 YTD 2016 Since Inception
(Annualised) Invesco Balanced-Risk Allocation Fund A 60% MSCI World (EUR hedged)/ 40% JPM Glbl Govt Bond Europe #
Monthly Performance in % (A shares, accumulation, in EUR, net of fees, inception date 1 September 2009)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2009 1.5 1.28 3.02 -0.57 5.30 2010 -2.28 1.75 2.48 2.05 -1.1 0.92 1.01 3.17 2.72 0.68 -1.44 2.76 13.30 2011 -0.67 2.03 -0.58 2.33 0.98 -1.05 3.99 2.82 -3.42 1.97 0.77 2.15 11.65 2012 3.53 2.25 -2.34 0.58 -2.17 0.44 2.94 0.57 1.42 -1.26 1.49 -0.35 7.13 2013 1.47 -0.35 1.46 0.89 -1.56 -4.95 2.39 0.28 1.48 2.01 -1.02 -0.76 1.12 2014 -0.35 2.23 -0.88 0.62 3.34 1.19 -0.07 1.17 -3.35 1.00 1.52 -0.52 5.89 2015 1.64 1.03 0.51 0.19 -0.89 -2.81 -0.39 -3.03 -1.50 2.69 -0.94 -1.56 -5.10 2016 -1.17 1.12 2.00 2.64 1.25 2.60 1.27 10.07
Source: DataStream, Invesco Global Asset Allocation, as at 31 July 2016. Past performance is not a guide to future returns. The figures do not reflect the entry charge payable by individual investors.
Gross Performance Attribution (as of 31 July 2016)
Month 1 months 3 Inception Since
(Annualised) 2009 2010 2011 2012 2013 2014 2015 Equity market exposure 1.42% 1.15% 2.55% 1.61% 3.16% -1.53% 4.17% 7.67% 1.53% 0.38% Bond market exposure 0.61% 3.67% 4.33% -1.36% 5.08% 12.03% 2.37% -4.14% 8.44% 0.88% Commodity market exposure -1.02% 0.34% -0.13% 3.68% 5.03% -0.71% 0.41% -3.48% -3.87% -5.61% Tactical Positioning 0.38% 0.57% 1.53% -0.01% 1.15% 2.45% 1.32% 2.50% 1.33% 0.78% Cash -0.02% -0.07% 0.35% 0.18% 0.79% 1.38% 0.63% 0.22% 0.20% -0.02% Total gross performance (sum of contributions) 1.37% 5.66% 8.63% 4.10% 15.21% 13.62% 8.90% 2.77% 7.63% -3.59%
Source: Invesco Global Asset Allocation. Based on monthly gross returns beginning 1 October 2009 (first full month) of the Invesco Balanced-Risk Allocation Fund and shows the attribution to total return by asset class. The tactical attribution is the result of over-/under-weights of the various asset class exposures vs. the strategic allocation.
4 Invesco Balanced-Risk Allocation Fund
Gross Tactical Attribution (as of 31 July 2016)
Source: Invesco Global Asset Allocation. Based on monthly gross returns of the Invesco Balanced-Risk Allocation Fund and shows the attribution to total return by asset class. The tactical attribution is the result of over-/under-weights of the various asset class exposures vs. the strategic allocation.
Strategy and Outlook
Equity markets are back to rising on promises of additional accommodation out of European and Japanese central banks, and the Fed’s inability to act on the repetitive jawboning about the imminent need to hike policy rates. The move to new highs even in the face of weak economic data as exemplified in the poor GDP report in the US should have investors asking how long the party can continue. In commodities, the question moving forward is if the pullback this month is the pause that refreshes, or if it is the beginning of a more meaningful pullback after the strong rally. Finally, the question for government bonds is how much lower can yields go?
Positioning for the month retains overweights across all six equity markets, but on an expanded basis in Europe, Japan and US small caps and a slightly reduced basis in the UK. In bonds, we are overweight the remaining four exposures (US, Canada, Australia and UK). The strategy remains absent Japanese government bonds and German government bonds primarily as a result of the negative yields in those instruments and in the case of Japan, the impaired flight-to-safety quality. In commodities we have retained modest overweights across most agricultural exposures, but have become more defensive across most energy exposures. In metals, we have shifted from overweight to neutral in aluminum, but retain modestly softened overweights in copper, gold and silver.
0.43% 0.03% -0.08% 0.38% 0.40% 0.23% -0.06% 0.57% -0.04% 0.50% 0.16% 0.62% -1.0% -0.5% 0.0% 0.5% 1.0%
Tactical Equity Tactical Fixed Income Tactical Commodity Tactical Total 1 Month 3 Months YTD
Target Tactical Positioning as of 31 July 2016:
Source: Invesco Global Asset Allocation. Tactical model signal represents the magnitude of overweights/underweights of each asset relative to its strategic allocation in the month in which it is implemented. -1 is the maximum underweight, 0 represents neutral and +1 is the maximum overweight. Each signal is mapped based on the determined tactical allocation ranges for each asset. Effective 31/07/16, gas oil, natural gas, crude oil, heating oil and unleaded gasoline were added to the commodity allocation to enhance portfolio diversification.
*Represents the average of the assets included in the customized commodity-linked note.
Target Risk Allocation and Weights as of 31 July 2016:
Asset Class Target Risk Target Risk Contribution Target Notional Asset Weights
Stocks 4.11% 42.55% 42.23%
Bonds 2.72% 28.18% 67.99%
Commodities 2.82% 29.27% 34.03%
Total 9.65% 100.00% 142.25%
Source: Invesco Global Asset Allocation. Target risk, risk contribution and notional asset weights represent positioning for the month ahead.
-1.0
-0.5
0.0
0.5
1.0
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July
August
6 Invesco Balanced-Risk Allocation Fund
Important Information
Fund name: Invesco Balanced-Risk Allocation Fund Fund manager: Invesco Global Asset Allocation team, CIO, Scott Wolle, Atlanta
Benchmark: 60% MSCI World(EUR Hedged)/40% JPM Glbl Govt Bond Europe
Launch date: 1 September 2009 Fund domicile: Luxembourg
Legal structure: A sub-fund of Invesco Funds (Luxembourg SICAV)
Fund currency: EUR
Fund size: EUR 2,501.74 million Share type: Accumulation - A Entry charge:
Up to 5.00%
Ongoing charges*:
(A) 1.61%
Minimum investment: (A, A-EUR) EUR 1,000 ISIN:
(A acc) LU0432616737 Bloomberg:
(A acc) INBAAAC LX
*The ongoing charges figure is based on annualised expenses for the period ending July 2016. This figure may vary from year to year. It excludes portfolio transaction costs except in the case of an entry or exit charge paid by the Fund when buying or selling shares/units in another fund.
This marketing document is exclusively for use by Professional Clients and financial advisers in Continental Europe, Qualified Investors in Switzerland and Professional Clients in Jersey, Guernsey, Isle of Man, Cyprus and the UK and is not for consumer use. Data as at 31.07.16, unless otherwise stated. Please do not redistribute this document. This marketing document is not subject to regulatory requirements that ensure impartiality of investment recommendations and investment strategy recommendations. Therefore, the prohibition of trading before the release of investment recommendations and investment strategy recommendations does not apply.
This document should not be construed as investment advice to buy/hold or sell shares in our funds or any other advice, including, without limitation, investment, financial, legal, accounting or tax advice, or to make any recommendations about the suitability of the fund for the circumstances of any particular investor. You should take appropriate advice as to any securities, taxation or other
legislation affecting you personally prior to investment. The information provided on the investments and investment strategy (including current investment themes, the research and investment process, and portfolio characteristics, weightings, and allocation) represents the views of the portfolio manager at the time this material was completed, and is subject to change without notice.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. The performance data shown relates to a past period. Past performance is not a guide to future returns. Where Invesco has expressed views and opinions, these may change. The attribution/contribution figures are
estimates and should be used for indicative purposes only. Data cleansing and retrospective information availability may cause changes. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon.
For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents, the latest Annual or Semi Annual Reports and the latest Prospectus. This information is available using the contact details of the issuer and is without charge. The information is also available in English from our websites www.invescoeurope.com (Europe), www.invescoperpetual.co.uk (UK) or www.invescointernational.co.uk (Jersey, Guernsey and Isle of Man)
Whilst the overall risk of the fund intends to be consistent with that of a balanced portfolio of equity and debt securities, this may not be achieved. The fund will make significant use of financial derivatives for investment purposes in excess of the value of the portfolio that could lead to large fluctuations in the value of the fund. The fund uses derivatives to gain leverage which can potentially be up to three times the value of its net assets. The fund will gain exposure to commodities to diversify the risk of the fund. Commodities are generally considered to be high risk investments and may result in large fluctuations in the value of the fund. Debt instruments are exposed to credit risk which is the ability of the borrower to repay the interest and capital on the redemption date.
The distribution and the offering of the fund in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make
such an offer or solicitation. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. The fund is available only in jurisdictions where its promotion and sale is permitted. As with all investments, there are associated risks. This document is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. Please be advised that the information provided in this document is referring to Class A (accumulation - EUR) exclusively.
Denmark: This document is provided only at the request of a professional client or qualified investor and is intended for the sole use of this person.
Germany, Austria and Switzerland: A decision to invest in shares of a fund must be based on the most up to date legal offering documents. These documents (fund & share class specific Key Investor Information Document, prospectus, annual & semi-annual reports, articles & trust deed) are available free of charge at our website www.invescoeurope.com and in hardcopy, German language and free of charge at the issuer of this marketing document in Germany, Invesco Asset Management Deutschland GmbH, An der Welle 5, D-60322 Frankfurt am Main, in Austria by Invesco Asset Management Österreich GmbH, Rotenturmstrasse 16-18, A-1010 Vienna and in Switzerland by Invesco Asset Management (Schweiz) AG, Talacker 34, CH-8001 Zürich, who acts as representative for the fund(s) distributed in Switzerland. Paying agent for the fund(s) distributed in Switzerland: BNP PARISBAS SECURITIES SERVICES, Paris, succursale de Zurich, Selnaustrasse 16, CH – 8002 Zurich. The fund is domiciled in Luxembourg.
Jersey and Guernsey: Issued by Invesco International Limited, 2nd Floor, Orviss House, 17a Queen Street, St Helier, Jersey, JE2 4WD. Regulated by the Jersey Financial Services Commission. In Guernsey, the fund can only be promoted to Professional Clients.
Isle of Man: Issued in the Isle of Man by Invesco Global Asset Management DAC, Central Quay, Riverside IV, Sir John Rogerson’s Quay, Dublin 2, Ireland. This document is for Professional Clients only. The Invesco Balanced-Risk Allocation Fund is an unregulated scheme that cannot be promoted to retail clients in the Isle of Man. The participants in the scheme will not be protected by any statutory compensation scheme.
Cyprus: Issues in Cyprus by Invesco Global Asset Management DAC, Central Quay, Riverside IV, Sir John Rogerson’s Quay, Dublin 2, Ireland, which is regulate in Ireland by the Central Bank of Ireland. Any scheme provided by the Cyprus regulatory system, for the protection of retail clients, does not apply to offshore investments. Compensation under any such scheme will not be available. The Invesco Balanced-Risk Allocation Fund is subject to the provisions of the European Directive 2009/65/EC.
UK: For the purposes of UK law, the fund is a recognised scheme under section 264 of the Financial Services & Market Act 2000. The protections provided by the UK regulatory system, for the protection of Retail Clients, do not apply to offshore investments. Issued in the UK by Invesco Global Investment Funds Limited, Perpetual Park, Perpetual Park Drive, Henley-on Thames, Oxfordshire, RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
