Invesco Monthly Income Plus - September 2020 update

Joseph Hill | Thu 17 September 2020

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• Paul Causer, the vastly experienced co-head of fixed income at Invesco who we rate highly, is one of the fund’s co-managers
• The managers mainly invest in bonds, but also invest in some company shares which can boost income and capital growth potential, although it adds risk
• The fund has performed ahead of its benchmark over the long term, although it hasn’t done as well more recently
• This fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The managers aim to achieve income and capital growth over the medium to long term by mainly investing in corporate and government bonds. They also have the freedom to invest in some global equities. This can boost the income paid and the potential for capital growth, however, shares are generally higher risk than bonds so this can add risk and volatility. The fund could add diversification to an equity focused portfolio or an investment portfolio looking to achieve an income.

Manager

The fund is co-managed by Paul Causer, Rhys Davies and Ciaran Mallon. Causer and Davies look after the bond portion of the fund, while Mallon focuses on the part invested in company shares.

Causer has over three decades investment experience and has managed the fund since launch in February 1999. We rate him highly for his experience and track record investing across global bond markets. Mallon has co-managed the fund since 2013 and Davies only recently joined at the end of August. Paul Read co-managed the fund up until the end of August alongside Causer and Mallon, but has now stepped back. We're encouraged Causer remains key to this fund but have stronger conviction in other strategic bond funds, so the fund doesn’t feature on the Wealth Shortlist.

Process

The majority of the fund is invested in corporate bonds. This is debt issued by companies who then repay investors the money they’ve borrowed with interest. The managers currently think bonds issued by some financials companies are among the most attractive in the market. As a result, financials is the largest sector exposure within the fund's corporate bond allocation. Bonds issued by Lloyds, NatWest and Barclays are among the largest investments in the fund.

A significant portion of the bond exposure is invested in high yield bonds, which are issued by companies that are less financially secure. They pay a higher rate of interest to compensate for the greater level of risk taken. The fund may also use derivatives which can add risk.

Mallon makes use of the fund’s flexibility to invest in equities with 7.3% of the fund currently invested here. He looks for companies that have good visibility of revenues, profits and cash flows, and aims to identify those that could grow their dividend year after year. Insurer General Accident, the Co-Operative bank and technology company Experian are some of the fund’s largest equity positions.

The fund currently yields 5.3%, although yields are variable and not a reliable indicator of future income. Charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Culture

The fixed interest team at Invesco, led by Paul Read and Paul Causer, have built a strong reputation and follow a clear and disciplined investment process, aiming to achieve the best returns for investors. They’re a well-resourced team with every opportunity to deliver good long-term performance.

Cost

The fund has an annual ongoing charge of 0.72%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.05%. This means you pay a net ongoing charge of 0.67%. The HL platform fee of up to 0.45% per year also applies.

Performance

Causer's track record is strong and the fund has beaten its benchmark over the long term. More recently, over the last five years the fund has matched the benchmark generating a 23.3%* return for investors, though this is still a relatively short period of time in investing.

So far this year, encompassing the recent coronavirus-related market volatility, the fund has lagged its benchmark, gaining 1.3% compared with a return of 2.2% for the IA £ Strategic Bond sector*. The fund’s investments in the healthcare and consumer discretionary sectors have detracted from performance over this time. It’s a very short timeframe to compare performance over though, and it isn’t a guide to the future. We expect the fund to perform strongly in a rising market but not to hold up as well when markets are falling, in part due to the fund’s investments in shares.

Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2020.

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