Invesco Corporate Bond - low interest rates hurt performance

Jonathon Curtis | Mon 29 July 2019

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• The managers have the flexibility to invest quite differently to other corporate bond funds
• They’ve been cautious for several years but took advantage of volatility at the end of 2018
• Recent performance has been tame but longer-term performance has been excellent

Our view

Corporate bonds have enjoyed a bit of a purple patch recently. On the whole they held up better than shares during 2018’s volatility and beat the returns of the FTSE All-Share index over the past 12 months. That’s of course no guide to future performance. Investing’s a long game, and Paul Causer has been investing in corporate bonds for longer than most.

Along with co-manager Michael Matthews, Causer invests in bonds issued by large companies like Lloyds, EDF Energy and Vodafone. They shift how much risk they take according to their view of the world, so it’s a flexible approach. Sometimes this means they could take more risk than other corporate bond fund managers, but other times they could take less.

That means performance can be quite different to many other corporate bond funds. The fund could therefore offer something different for a portfolio investing in bonds, and we think it could do well for investors over the long term, although there are no guarantees. The fund doesn’t feature on the Wealth 50 as we prefer other funds run by the bond team at Invesco.

How’s the fund invested?

The managers have taken a fairly cautious approach in recent years, as they thought the environment for bonds was going to get tougher. In the past year they added to higher-quality and ‘investment grade’ bonds so they now make up over half the fund. They’ve also increased the level of cash and reduced investments in higher-risk higher-yielding bonds.

Their predictions haven’t been proved right though, with rising bond markets, as well as inflation remaining low and central banks restarting their support for the markets, which normally benefit many bonds.

Causer and Matthews did well from taking advantage of the market volatility at the end of 2018. They invested in bonds from companies such as Telecom Italia, HSBC and VW that they thought were attractively priced, and sold them again in 2019 for a profit after their price had risen.

The managers invest in bonds that are generally less sensitive to changes in interest rates than many other corporate bonds. Up until the end of 2018 it was widely expected that central banks would begin hiking interest rates. This would have pushed bond prices down and so less sensitive bonds would have fared relatively well. But now many central banks have done a U-turn and look set to cut rates again.

The managers have the flexibility to invest in derivatives, which if used adds risk.

How’s the fund performed?

Causer and Matthews’ cautious approach has held back the fund’s performance recently. Since Causer launched the fund in July 1995 though, it’s done significantly better than the IA Sterling Corporate Bond index. The fund’s grown 437.2%* compared with the benchmark’s 273.5% growth. It’s achieved this by holding up relatively well when the markets have fallen, though it hasn’t normally kept pace with the markets when they’ve risen. None of this is an indication of future performance.

The fund currently yields 2.8% although that’s not a guarantee of future yields or a reliable indicator of future income.

Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2019

Invesco Corporate Bond – performance since launch

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2019

More about this fund, including charges

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