Invesco Perpetual is launching a Global Financial Capital fund, managed by co-heads of fixed income Paul Causer and Paul Read alongside CIO Nick Mustoe, to tap into long term structural reform of the financials sector.
The fund will seek to deliver attractive total returns over the medium to long term by investing globally in capital securities and equities of banks and other financial institutions, as well as cash and cash equivalents. It will launch on 25 January with £2m in seed money and sit in the IMA Specialist sector.
At launch, the fund will be predominantly a fixed income vehicle, as this is where the team sees the most value. The equity portion of the fund, to be run by Mustoe utilising the expertise of the Invesco Perpetual management team, will be around 0-5% of the fund at launch but has the potential to rise to 40% of the portfolio.
Although the bond duo took a performance hit from their bank weighting last year (currently around 46% of their Tactical Bond fund), they believe a wealth of longer term opportunities will be created for financials by structural reform, regulatory change such as Basel III as well as the diversity of ways to play these themes. The team also highlights yields are at compelling levels for the sector, at values not seen since 2008-9.
Paul Causer said: "There is an exceptional investment opportunity here. As difficult as it is at the moment over a number of years we see the banks, especially in big developed economies, on a transformational path to becoming different types of institutions with lower leverage, greater levels of better quality capital as well as being more tightly regulated. Over a longer timeline banks will become safer and almost utility-like.
"We have had the fund in mind since the crisis of 2008-9 and unless you believe it is the end of banking in the private sector, then investment opportunities will rise."
He said although there are heightened risks of a bank or particular type of issue failing, the events of the eurozone debt crisis and each incremental policy decision have made banks accelerate the pace at which they move to a safer position.
"The risks are greater but markets are pricing in a very pessimistic scenario and it is more balanced than that," he said.
"The fund will not appeal to everyone as it is high risk and with a gross yield on the fund of around 9-11% at launch you can see the risks involved. However, there are opportunities for investors almost immediately as valuations and yields are fantastic with a number of risk/return channels."
The managers are currently seeing the most stress and value in a lot of subordinated debt which is very lowly priced, waiting for some kind of event or with a high level of income.
At launch, the fund will be more Europe and UK focused but it does have a global remit and the managers will be looking at US banking names as well as selected opportunities in more developed emerging markets.
The fund will mainly be invested in the banking sector but will also have exposure to insurers and other types of financial institutions.
There is currently a discount of 1.75% on the fund's 5% initial charge and the AMC is 1.25%. The minimum investment on the fund is £500 and it is available for ISA investment.
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