Following our latest fund launch on 26th January 2004, we would like to introduce you to the INVESCO PERPETUAL Distribution Fund, by outlining some of the main benefits that the fund can bring to you and your clients.
Question – bonds or equities?
The volatility witnessed by global investment markets over the last few yearshas underlined the benefits of portfolio diversification, not just in terms ofstock selection, but also in terms of asset classes. In the current economicclimate, there is no overwhelming case to support either equities or bonds overthe other. Bonds, for example, performed strongly in 2003, with a sharp contractionin the yield spread (the difference between the yield available on corporatebonds and that on gilts) boosting returns, particularly in the high yield sector.Further tightening of yield spreads is still possible in 2004, but coupon incomeis likely to form a larger part of total returns.
The outlook for equities is also relatively benign – the FTSE All Share Index ended last year 32.5% above its low point reached in March 2003. Although UK equity valuations do not look too stretched, further index progress is likely to require the support of an improvement in earnings figures.
Answer – bonds and equities!
In short, 2003 was a good year for all asset classes but we expect gains in 2004 to be more modest. In the absence of clear indicators favouring one asset class over another, a prudent strategy would be to gain exposure toboth.
The main benefits of the INVESCO PERPETUAL Distribution Fund
Diversity
The volatility of the last few years has also highlighted the risks that are inherent in asset allocation decisions. UK equities (as measured by the Lipper UK All Companies sector average) have shown the highest returns over 10 years to 31st December 2003 on a mid price, sterling basis, inclusive of net reinvested income, (source: Lipper, a REUTERS Company), but have also displayed much greater volatility. Corporate bonds and gilts (as measured by the Lipper UK Corporate Bond and Lipper UK Gilt sector averages respectively) have displayedmuch more stability, but are not immune to periods of negative returns.
While markets began to perform strongly again in 2003, any period of market volatility acts as a clear reminder of the importance of maintaining an exposure to different asset classes. The INVESCO PERPETUAL Distribution Fund can provide simple access to a broad range of these asset classes, while maintaining a minimum exposure to fixed interest securities of 60%. (Investors should be aware that in the interests of prudent investment management, the fund may increase its equity allocation up to a maximum of 60%, as permitted by its sector classification).
Flexibility
Within this framework, the fund managers retain the flexibility to pursue investment opportunities across a wide range of asset classes. This means our experienced fund managers will be making the decisions as to how much should be invested in each asset class. This active asset class decision-making reduces theneed for investors to worry about switching investments at the right time.
With interest rates close to fifty year lows, many investors will be feeling dissatisfied with building society returns, but are perhaps still concerned about committing investments to the stock market. A bond/equity combination fund, such as the INVESCO PERPETUAL Distribution Fund, provides a useful avenue for investors to regain some exposure to equity investment, thereby helping to rebuild investor confidence.
"For further information about the INVESCO PERPETUAL Distribution Fund, see www.invescoperpetual.co.uk/distribution."
Past performance is not necessarily a guide to the future. The INVESCO PERPETUAL Distribution Fund invests mainly in fixed interest bonds, which are generally viewed as lower risk investments than equities. The portfolio can have a significant proportion of high yielding bonds. These have an increased risk of capital erosion due to a higher possibility of default by the bond issuer. Changing market conditions and interest rate levels can also have a larger impact on the values of high yielding bonds. Income from the investments may fluctuate in value in monetary terms and is not guaranteed. The annual charge will be deducted from the capital of the funds. This will increase the distributable income of the fund by an amount equal to the reduction of
capital, which may constrain or even erode future capital growth. The increase in income will lead to a corresponding increase in the amount of tax payable on that income. More than 35% of the value of the INVESCO PERPETUAL Distribution Fund may consist of Government and public securities, as detailed in the prospectus. The solvency of organisations with whom the fund invests cannot be guaranteed, and any difficulty may adversely affect the fund’s performance.
Detailed information on INVESCO PERPETUAL ICVCs is available from the office of the ACD. INVESCO PERPETUAL has expressed its own views and opinions in this article and these may change. This article has been issued by INVESCO Fund Managers Limited for circulation to independent financial advisers only, and should not be distributed to, or relied upon by, other parties.
INVESCO PERPETUAL is a business name of INVESCO Fund Managers Limited
INVESCO Park, Henley-on-Thames, Oxfordshire RG9 1HH
Authorised and regulated by the Financial Services Authority
A Member of the AMVESCAP Group
