HEAD-TO-HEAD: Invesco vs Morgan Stanley

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The three-year performance of the Invesco and Morgan Stanley funds versus their benchmark indices.

Although the Invesco fund aims to outperform the market in the long-run with low volatility stocks, the fund has underperformed over multiple periods, according to FE data.

Source: FE Analytics. Cumulative performance in US dollars.

“It is hard for the fund to perform in a market rotation,” Ng explained, adding that what constrains the fund is its balanced allocations to different sectors.

For example, when IT and momentum stocks outperformed last year, the fund underperformed because of its low exposure to IT.

However, in spite of its underperformance, Ng noted that the fund offers downside protection during market downturns because of its low volatility.

“If you compare the volatility of the fund with the benchmark and sector over multiple periods, it will always be lower.”

In addition, although it has underperformed its benchmark index over multiple periods, the fund has consistently produced positive returns for investors, with the exception of 2016, Ng noted. “Performance has been very steady except for 2016, but that was a marginal loss,” he said.

Discreet annual calendar performance

Source: FE Analytics

For the Morgan Stanley fund, Ng attributed its strong outperformance to stock selection.

The performance was also strong in 2017 and this year because of its huge allocation to information technology and consumer discretionary, which collectively make up around 70% of the fund’s portfolio, he added.

However, the fund underperformed in 2016. “This was the year when Trump was elected as president, and low quality stocks outperformed that year,” Ng explained, adding that fund managers focusing on quality stocks underperformed during that period.

In terms of volatility, it is not surprising that the Invesco fund has significantly lower volatility given its focus on low volatility stocks.

Three-year annualised volatility

Source: FE Analytics

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