Smith on Funds: Invesco’s fettered funds face a bright future

The recent shuffle at Invesco Perpetual, which saw head of US equities Ian Brady take over the management of the group’s fettered fund of funds from CIO Bob Yerbury, should ensure the continued success of the range.

Invesco Perpetual’s chief investment officer (CIO) Bob Yerbury has handed over responsibility for the day-to-day management of the group’s fettered funds of funds to Ian Brady, its head of US equities, who re-joined the company from Schroders in early 2003.

The £210 million Invesco Perpetual World Growth and £150 million World Income funds launched in 1997 and both have a good pedigree. Fettered funds of funds generally do not have great reputations but the strength of Invesco Perpetual’s range has given Yerbury a significant helping hand.

For example, both funds’ largest investment, worth close to 20% of each fund, is in Neil Woodford’s celebrated Income fund, which ranks second of 66 UK Equity Income unit trusts over the last five years. Other funds such as the UK Aggressive have also added significant value. That said, there are still rumours that Invesco Perpetual has been looking to offer an unfettered fund of funds.

Over the last five years the World Growth fund has made a total return of 4.36% – a pretty poor return in absolute returns and in the context of UK inflation or the returns delivered by risk-free deposits. The retail price index rose by about 13% and the Moneyfacts 90-day £5,000 index made more than 15%. However, the average Active Managed fund lost 14.28% of its investors’ money and the average Balanced Managed fund lost 7.79% of its value. Against its more direct competitors there is no doubt the fund performed well.

Lipper’s composite benchmark for the funds, based on 35% UK equities, 15% UK bonds and 50% overseas equities made a total loss of 7.88%. This may not be the best benchmark for these funds, since the growth fund is equity oriented and both have a distinct bias towards the UK, but it gives some idea of the returns a diversified global portfolio might have made.

The Income portfolio beat its Balanced Managed peer group – and the LCI UK Balanced & International Equity (35:15:50) index – in each of the last five discrete 12-month periods. The Growth portfolio achieved an almost as impressive feat with underperformance of both the Active Managed peer group and the LCI index in 2002 only.

Looking more technically at the last five years both funds achieved very respectable risk-adjusted performance when measured either against the peer group average or the LCI index. The Income fund achieved a positive three-year information ratio over rolling periods for the entire five years.

This suggests an impressive record of consistently solid risk-adjusted performance. The Growth fund passed this test cleanly when measured against its peer group but delivered a negative result against the LCI index for four of the 26 rolling periods, which reflects some underperformance of the index through late 2002 and early 2003.

Yerbury remains CIO and will still chair the company’s asset allocation committee, although Brady will have leeway to over-ride the committee’s opinions should he wish and choose his own asset allocation and fund selections.

Since Brady returned to the Henley fold, he was head of North American investments before he left to join Schroders in March 2001, he has taken responsibility for several funds, including the US Aggressive, US Equity and more recently the US Smaller Companies funds. Each of these has shown perfectly respectable results in what is a very tough, efficient market to seek outperformance.

In recent years these fettered fund of funds have performed impressively well. With Brady as the lead manager, Yerbury still head of the asset allocation committee and managers such as Woodford still very much in place there is plenty of room for them to continue to outperform whether Invesco Perpetual moves into unfettered funds of funds alongside them or not.

First published January 20 2005 BY: David Smith, New Model Adviser

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