Active management

The power of portfolio flexibility

Many investment managers apply strict portfolio constraints under the guise of risk management best practices. These often include limits in sector over-/under-weightings, geographic concentrations, minimum levels of portfolio holdings and/or market capitalization requirements. The challenge around these types of curbs is that while they are designed to reduce potential return variance, typically in relation to a particular benchmark, they also can considerably constrain excess return potential.
 
Overly restricting a potential investment universe can work against active managers’ ability to fully exploit research and market mispricing opportunities. To help illustrate this, think of constraints from the perspective of retail consumers.
 
A consumer who is free to purchase from any retailer without restriction can make more informed choices –and likely better purchases in terms of price, quality and overall value –than consumers who must spread purchases across at least fifty different retailers, restrict purchases from retailers headquartered in certain countries and/or only make purchases from retailers with a minimum of $1billion in annual sales. Applying the same logic to investment management suggests that greater selection choice combined with effective security research can offer a more favorable position to generate excess returns.

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Our new study shows factor investing adoption continues to increase globally

Invesco’s Office of Global Factor Investing believes that systematic, evidence-based application of investment factors is part of a permanent trend as these strategies can complement other approaches in achieving client objectives. The most common client journey starts with factor investing in equities before moving into other asset classes; however, adoption is often client-specific.

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Is it too late to invest in small caps?

Over 10 years into an economic expansion, and with recession concerns moving to the forefront, many investors are asking whether it is too late to invest in small-cap stocks. Conventional wisdom says that small caps are hit harder in a recession than large caps, so if a recession is imminent, then one should not own small-cap stocks. But I believe this is the wrong question to ask. For investors who are concerned about small caps, I would note three things: Trying to time the market is generally a fool’s errand, small caps have delivered historical long-term outperformance, and small-cap valuations look attractive, in my view — especially in certain industries.

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Idea generation in the investing world

A frequent topic of discussion in the investing world is idea generation — how do you best come across great investing opportunities? Among the typical avenues that institutional investors explore are conferences, management roadshows (where a broker brings a management team to see investors in a city), screening tools, and their own professional networks.

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The potential benefits of Emerging Market debt

Emerging market debt has evolved over the past few decades from a source of political and economic vulnerability to a potential positive driver of portfolio returns. The addition of new sovereign issuers (denominated in U.S. dollar and euro) has broadened the opportunity set for global investors, and corporate issuance has meaningfully contributed to its growth.

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Invesco Global Bond Fund: The first three years

Invesco Global Bond Fund crossed its three-anniversary with strong returns, finishing in the top quartile of its peer group.¹ The management team navigated choppy waters with a changing mix of assets to capture upside in good times while providing protection in more challenging periods. The use of corporate credit, mortgage back securities and emerging markets helped to generate returns in calm markets, while a significant allocation to global government bonds helped to provide ballast during times of volatility.

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Small-cap stocks: Why patience matters

The payment sector has been the darling of Wall Street the last few years, and it continues to be an active space with several mega-mergers. Only four months into 2019, the payment sector already reached US$85 billion of merger and acquisition announcements – almost doubling the full-year record of US$49 billion in 2018.¹ I expect the trend to continue.

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What can we learn from Kawhi Leonard?

The Toronto Raptors are the 2019 NBA Champions. They went from being underdogs to beating the reigning champions in six games. This win has captured the attention of long-term fans and bandwagoners alike and one of the main protagonists has been Kawhi Leonard, the Raptor’s elusive star who has consistently been the difference maker throughout the entire playoffs. One thing that stands out about Kawhi is his demeanour: he appears emotionless. The Wall Street Journal analyzed 254 shots taken by Kawhi throughout his career in the last five minutes of close games and in 78% of those shots, Kawhi had no reaction and in the instances when he did react, the reactions were muted.¹ The same can be said of missed shots where Kawhi shows little sign of being rattled.

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A foundational approach to managing risk

According to Plato’s account of his mentor’s trial, Socrates stated “The unexamined life is not worth living.” I think this is a pretty good motto, so I spent the past nine months reviewing and evaluating my investment process to ensure that I haven’t picked up any bad investment habits.

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European uncertainty has lowered the price tag for quality stocks

The fourth quarter of 2018 was tough on investors in European equities, and uncertainty appears to be rising as we enter 2019. But the Invesco International and Global Growth team believes that environments like these can result in great prices for attractive businesses. In fact, we haven’t seen valuations in Europe this low since 2013. So, what is our outlook for Europe, and where are we finding opportunity?

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Emerging markets: No shortage of reasons to be cautious in 2019

Key takeaways

• Emerging Markets (EM) face high uncertainty due to US equity market volatility and trade wars.
• Yet we believe EMs as an asset class looks attractive as they are quite undervalued.
• Quality has been out of favor in the EM markets in 2018, but we anticipate a reverse to the mean in the near future.

Emerging markets are one of the few asset classes where informational inefficiencies provide a fertile ground for bottom-up stock pickers (i.e., active investors) to add value. In our opinion, demographics, technology, decreased reliance on commodities and globalization all provide visible long-term growth potential.

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The correction: Why I focus on quality dividends

The October sell-off in global markets has several underlying factors, but the most commonly cited reasons are the rise in U.S. 10-year Treasury yield, concerns on earnings growth and the overall level of valuations.

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Web stocks, user data abuse and regulation

The past few weeks have been characterized by significant volatility in the share prices of the world’s largest internet companies, which comprised the once-vaunted cohort of top-performing “FANG” stocks. In the span of less than one month, revelations about social networks permitting unscrupulous access to users’ personal data, upcoming regulatory changes in Europe, and increased attention by U.S. lawmakers have caused a swoon in global technology and internet equities.

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What may be ahead for equities?

An aging profit cycle and higher valuations suggest now may be a good time to prepare for downside risk

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Investing in emerging markets: Multinationals vs. local

I am often asked why an investor should invest in local businesses in emerging markets instead of putting their money in large multinational companies. For example, why invest in Amorepacific Corp., a Korean cosmetics company, over Revlon, a multinational that derives a portion of its revenue from sales in emerging markets? This is a fair question, and as a long-term global investor, I will outline my thoughts on it in this blog post.

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The increasing role of technology

There was a time when asset managers could largely be agnostic to technology. The common justifications were that the space was too esoteric, dynamic and generally difficult to understand. While there is some truth behind these sentiments, the increasing pervasiveness of technology into our lives and into the business models of most enterprises means that avoiding technology has shifted from abscondment to perilousness.

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Why truly active managers aren’t afraid of rising rates

With interest rates starting to rise, many investors are wondering what impact, if any, the move upward might have on their portfolios. We asked Marina Pomerantz, a portfolio manager on the Trimark Global Equities team and Neeraj Khosla, an investment analyst covering emerging-market (EM) equities for the same team, for their views on the current interest-rate environment.

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When geopolitical tension creates opportunities

Whether it’s nuclear tensions on the Korean peninsula, revolution in the Ukraine, the Brexit vote in the U.K. or an unpredictable legislative agenda from the Trump administration, there is no shortage of geopolitical issues for investors to consider. However, for us as long-term investors, the question is: When do these stresses create buying opportunities?

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What could billions of repatriated dollars mean for bonds?

Tax reform has incentivized companies to return their offshore cash to the U.S. This could create opportunities for U.S. investment grade bonds.

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The death of retail has been exaggerated

For the past couple of years, I’ve been seeing the same headlines over and over, predicting the end of brick and mortar retail. The rationale is that Amazon will continue to expand its offering lineup and wipe out entire sectors shortly after it enters their space.

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