Invesco Perpetual Tactical Bond - where are the best bond market opportunities?

Heather Ferguson | Tue 08 March 2016

The links in this article will take you to Hargreaves Lansdown’s main website for more information. Please be aware that if you wish to join any of the benefits in your company Plan you must return to this website to apply.

Paul Causer and Paul Read manage a range of fixed interest funds; the most flexible of which is the Invesco Perpetual Tactical Bond Fund. With no constraints over geography, sector or credit quality it is a portfolio of their very best ideas.

In recent months, up to 60% of the portfolio has been in cash or near-cash positions (short-dated bonds where the value is unlikely to move dramatically, and which are easily sold) as the managers felt investors were not adequately rewarded to take additional risk. This has recently begun to change. Over the past few weeks, the managers have taken advantage of weakness in bond prices to increase their exposure to higher-risk bonds and reduce the defensive portion of the portfolio by 20%.

A large proportion of this higher-risk exposure has been focused on corporate bonds issued by financial companies such as Dutch bank ING Group and French bank BNP Paribas. Financial bonds have been a major theme within the portfolio since its launch in February 2010 when negative sentiment following the financial crisis pushed the valuations of bonds issued by financial companies to low levels.

Valuations of financial companies fell again more recently as investors worried about how low levels of global growth would affect the ability of banks to repay their debt. However, the managers feel this fear is overdone and do not anticipate widespread bank failures. In Paul Read and Paul Causer's opinion, the financial sector is still undergoing a long term process of rehabilitation. However, banks have been supported by central banks and have made efforts to strengthen their balance sheets. They therefore look appealing to the managers, especially as many are still trading at attractively low levels.

It is times like these that highlight the advantage of investing with strategic bond managers. Prices of financial bonds have already snapped back as central banks and bank CEOs put investors' at ease. The fund's flexibility allowed the managers to increase exposure to financial bonds at the point when yields were highest, which has provided a boost to the fund's performance. Since launch, the fund compares favourably to its peers, returning 36.7% while the average fund in the sector has returned 30.7%*. Although, past performance is not a guide to future returns. Please note, the managers are able to use derivatives, which increases risk.

Performance of the Invesco Perpetual Tactical Bond Fund since launch

Source: Lipper IM

Source: Lipper IM to *01/03/2016. Past performance is not a guide to future returns.

Our view on this fund

Paul Causer and Paul Read are both highly experienced bond investors and are two of our favoured fund managers for investing across the fixed income spectrum. The changes made to the portfolio in recent months demonstrates the managers' ability to quickly take advantage of opportunities.

They have a wealth of experience and although their views can differ from other managers in the sector, we believe they have the ability and the tools at their disposal to deliver good returns over the long term. The fund remains on the Wealth 150+ list of our favourite funds across the major sectors with low charges.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.