Question
I have broken one of my own investment rules and put quite a lot into an investment that I don't really understand. It is Invesco Perpetual Tactical Bond. I have read the fact sheet but I am unclear as to what are the instruments I am investing in. When I bought it I thought I was buying something that was probably going to be unexciting but which would have a very limited downside.
I have had enough excitement recently and wanted something close to cash but with a better return. The fund has performed well, too well not to be taking some sort of risk I wonder? Can you explain it?Answer
The Invesco Perpetual Tactical Bond basically allows its managers, the well-regarded Paul Causer and Paul Reed, to invest pretty much however they want in the fixed interest market. So holdings can include cash, gilts, investment grade and high yield corporate bonds, both UK and up to 20% overseas.
The idea behind such flexibility is that the managers can simply invest where they have highest conviction, without worrying about income levels (i.e. yield) or within reason, risk. So, the fund could feasibly be fully invested in cash if the managers are negative about bond markets or mostly exposed to high yield bonds if they’re particularly optimistic about that end of the market. In practice it’ll probably be somewhere in between, but the point is the investments held can vary quickly and widely.
Invesco Perpetual has yet to publish details of how the fund has invested since launch on 1 February 2010, although based on performance to date there’s probably a bias towards high yield bonds.
If you’re looking for an investment that’s similar to cash investment I’d think again. Given the quality of management I’d expect this fund to do well longer term, but there’s scope for plenty of downside if they get it wrong. For example, high yield bonds tend to be correlated to stockmarkets, so if the fund is heavily exposed to this sector and markets plummet you’ll lose money.
Compared to a plain vanilla gilt or investment grade corporate bond fund the Tactical Bond fund is potentially higher risk, less likely to deliver a consistent income and will probably alter its holdings more frequently. It’s also a little expensive with a current total expense ratio of 1.56%, although as the fund grows in size this should fall a little closer to the annual management charge of 1.25%.
Overall I like this fund, but would regard it as a medium rather than low risk investment.
I have broken one of my own investment rules and put quite a lot into an investment that I don't really understand. It is Invesco Perpetual Tactical Bond. I have read the fact sheet but I am unclear as to what are the instruments I am investing in. When I bought it I thought I was buying something that was probably going to be unexciting but which would have a very limited downside.
I have had enough excitement recently and wanted something close to cash but with a better return. The fund has performed well, too well not to be taking some sort of risk I wonder? Can you explain it?Answer
The Invesco Perpetual Tactical Bond basically allows its managers, the well-regarded Paul Causer and Paul Reed, to invest pretty much however they want in the fixed interest market. So holdings can include cash, gilts, investment grade and high yield corporate bonds, both UK and up to 20% overseas.
The idea behind such flexibility is that the managers can simply invest where they have highest conviction, without worrying about income levels (i.e. yield) or within reason, risk. So, the fund could feasibly be fully invested in cash if the managers are negative about bond markets or mostly exposed to high yield bonds if they’re particularly optimistic about that end of the market. In practice it’ll probably be somewhere in between, but the point is the investments held can vary quickly and widely.
Invesco Perpetual has yet to publish details of how the fund has invested since launch on 1 February 2010, although based on performance to date there’s probably a bias towards high yield bonds.
If you’re looking for an investment that’s similar to cash investment I’d think again. Given the quality of management I’d expect this fund to do well longer term, but there’s scope for plenty of downside if they get it wrong. For example, high yield bonds tend to be correlated to stockmarkets, so if the fund is heavily exposed to this sector and markets plummet you’ll lose money.
Compared to a plain vanilla gilt or investment grade corporate bond fund the Tactical Bond fund is potentially higher risk, less likely to deliver a consistent income and will probably alter its holdings more frequently. It’s also a little expensive with a current total expense ratio of 1.56%, although as the fund grows in size this should fall a little closer to the annual management charge of 1.25%.
Overall I like this fund, but would regard it as a medium rather than low risk investment.
Read this Q and A at http://www.candidmoney.com/questions/question188.aspx
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