HEAD-TO-HEAD: Invesco versus Pimco

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Investment approach

Despite recent volatility in bond markets, a long period of low yields and now the prospect of inflation and interest rate hikes, “an investment grade credit fund is still an important part of investors’ portfolios,” said Poole.

The Invesco and Pimco strategies are among the best available, although they have quite distinct approaches, he noted.

The Pimco fixed income approach is “well-known and respected”, he said. “It comprises a clear macro top-down process and capability in conjunction with a excellent bottom-up credit analysis.”

The strategy is benchmarked against the Bloomberg Barclays Global Aggregate Credit Index, but the managers have the flexibility to take active positions and typically do so effectively. The fund can hold a wide range of off-benchmark securities, including emerging market bonds, securitised debt and a limited amount of sub-investment grade bonds.

“However, the active bets are well risk-managed to restrict volatility,” said Poole. In order to extract additional alpha, the managers can also take foreign exchange positions and buy derivatives, which can mean the fund has some leverage – and also might make it appear complicated to retail investors.

Yet, Poole knows the managers well, and is confident that their use of derivatives, such as swaps, is a powerful tool to ensure the fund can access liquidity.

Turning to the Invesco fund, “the portfolio manager’s approach is similar to Pimco’s, with a clear top-down process, and with regional and sector themes,” said Poole.

But, the fund has different benchmark and takes a more relative value approach which leads to substantially different portfolio composition.

For instance, the fund can take exposure of up to 30% in sub-investment grade bonds – although its weighting is currently only 5%. It also tends to have greater geographical variation, and has only a 20% allocation to US dollar bonds, compared with about 62% in the Pimco portfolio.

As a result, turnover can be greater and the number of issuers higher, according to Poole.

Fund characteristics:

Source: Fund factsheets, January 2022

Country allocation:

Source: Fund factsheets, 31 January 2022

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