HEAD-TO-HEAD: Invesco vs Schroders

123456

Investment strategy

Both funds are managed with a combination of top-down macroeconomic analysis and bottom-up security selection. However, the Invesco fund has a more “fluid” approach to the balance between the two aspects, according to Dash.

The Invesco fund is a benchmark-agnostic strategy, which “at times it could be mostly macro, at times it could be completely driven by bottom-up,” Dash said. “The sector and country allocations could be quite non-standard.”

The fund does not use a benchmark but does use the Mstar GIF OS EUR Corporate Bond Index as a reference index.

The portfolio is constructed around three buckets – defensive, credit risk and liquidity. The defensive bucket constitutes around 50% of the portfolio and consists mostly of non-financial investment grade corporate bonds and senior bank debt. The credit risk bucket, which is limited to 30% of the portfolio, consists of high yield and subordinate financial debt. The liquidity bucket contains short-term bonds, high-quality government bonds and cash.

The duration of the portfolio is actively managed, most recently moving between two and six years. At the end of April, the average effective duration was 5.5 years, higher than the fund’s three-year average of 4.78 and that of the category average 4.7.

In the past, the Invesco fund had a bias toward financials, according to Dash. However, the allocation has been gradually reduced. Today the fund managers are underweight financials, compared to the category index.

The fund holds around 34% exposure to US debt, which is high for a euro corporate bond fund. At the end of April it held around 14% in cash. The fund’s average credit quality is BBB, with 88.8% allocated to investment grade bonds, in line with the category. The fund can hold up to 30% in high yield bonds.

Turning to the Schroders fund, the investment process centres around investment themes stemming from macroeconomic factors. The fund typically employs between 10 and 15 themes with investment horizons between six months to two years.

“The themes impact the size of the positions in the portfolio,” Dash said. As individual positions are looked at in the context of each theme, if one position satisfies more than one theme, it will have a higher allocation.

“This approach differentiates this fund from a lot of peers,” he said.

Dash said the manager of the Schroders fund keeps the duration of the portfolio very close to the benchmark, the ICE BofAML Euro Corporate Bond Index. In April the average effective duration was 5.43 years, a little higher than the three-year average 5.17 and the category average 4.7.

The fund holds only 11.8% exposure to US debt, below the average for the category, and in April it held only 2% of assets in cash. The average credit quality was BBB and 84.6% of its holdings were investment grade, slightly below the average for the category. The fund can hold up to 20% in high yield bonds, 10% less than the Invesco fund.

The Schroders fund typically holds around 380 positions from around 200 issuers, while the Invesco fund holds less than 200 bonds. The difference is likely a result of the relative size of both funds. The Schroders fund, which is almost four times bigger, is more likely to use several bonds from the same issuer to implement their allocations, Dash said.

The Schroders fund is also more active in derivatives and has a higher exposure to emerging markets than the Invesco fund, Dash noted.

123456