December, 2022
Contributors to performance
The strategy underperformed benchmark for the period.
Strategic exposure to the growth macro factor detracted from results for the period as all six markets in which the strategy invests saw index levels decline. US small caps were the primary detractor to results due to its higher beta profile and sector exposure which overweights higher duration equity segments relative to other markets. Japan equities struggled as the Bank of Japan (BOJ) announced that it was going to widen the band in which the 10 year yield could move. This set off concerns that the BOJ was likely to embark on a tightening cycle.
US large caps fell in the period alongside US small caps as the Federal Reserve (Fed) raised rates 50 basis points in its December meeting. European stocks detracted a similar amount as the European Central Bank (ECB) also tightened by 50 basis points. Emerging market ate into results, but to a lesser extent than other markets as the scrapping of zero-Covid policy by China was seen as a positive development. UK equities were the best relative performer despite a 50 basis point hike by the Bank of England (BOE) during its December meeting. Given the tough environment for equity markets, our defensive put structure was able to mitigate some of the declines.
Strategic exposure to the defense macro factor was the lead detractor from results for the month. All six bond markets in which the strategy invests saw yields rise over the period. The rise was tied to the continued tightening stance taken by central banks. As previously mentioned, the Fed, ECB and BOE all raised rates in the period. There were joined by the Bank of Canada (BOC) which raised by 50 basis points and the Reserve Bank of Australia (RBA) which raised 25 basis points. In addition to the rate increases, the post announcement language from the respective central bank heads was uniformly hawkish noting the persistently high levels of inflation. These comments came even as evidence for looming recessions continue to mount. While the BOJ has yet to joint its counterparts in raising rates, its announcement regarding widening the allowable yield bands for its 10 year government bond produced an outsized loss relative to what investors have come to expect over an extended period of time. Our exposure to defensive factor premia produced a minor offset to the losses in fixed income as the factors generated returns marginally higher than their respective base indexes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/195912502.pdfNovember, 2022
Performance was positive for the month. Our more 'risk-on' ideas benefited from surging equity markets.
The standout equity ideas were 'Equity -Japan', 'Equity - UK' and our Asian and Australian equity ideas. Equally strong were our selective credit and US high yield ideas. On the downside, the risk on move meant our idea preferring US small caps to US large caps underperformed, as well as a number of ideas where we are short equities, for example in India and European industrials and insurers. A rallying oil price also boosted our currency idea preferring the Norwegian krone to the British pound. However, this strong move in oil meant our 'Commodity - Commodity Short' detracted.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162927161.pdfOctober, 2022
‘Inflation - Short UK' has been the strongest performer, recovering a portion of the losses accrued over the course of the year. The appointment of new Prime Minister Rishi Sunak and his new more conservative fiscal policy were welcomed by markets, allowing investors to pare back some of the very elevated inflation expectations that had been priced in as a result of the "mini-budget announcement from the Truss administration. This idea has now been removed from the portfolio.
'Currency - New Zealand vs Australia' also delivered positive results for the fund. Slowing demand out of China for Australian exports, declining commodity prices and the RBA's ongoing signalling to markets over its unwillingness (or inability) to hike rates at the same pace as the Fed or the ECB have exercised a negative pressure on the Australian dollar over the period. The recently introduced ‘Equity - Equity Dividends’ idea also contributed positively, largely benefitting from a recovery in risk appetite over the month.
US CPI saw a mild surprise to the upside in September at 8.2% compared to consensus of 8.1%, with European inflation also coming in hotter than expected. This contributed to bond yields moving higher. Our 'Interest Rates - US long term' idea detracted as a result. After a strong period of positive performance, our ‘Volatility - FX Volatility’ idea pared back some of the gains in October. 'Equity - European Infrastructure' also came under pressure over the month due to ongoing energy crisis in Europe and tensions between Russian and the West.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Invesco-Wholesale-Global-Targeted-Returns-Fund-Class-A-Monthly-Report-R.pdfSeptember, 2022
Our long exposure to the US Dollar performed strongly, as risk averse investors sought a perceived "safe haven" currency. Expectations that the Fed would hike rates more aggressively than other central banks supported the dollar on a relative basis. 'Currency - US Dollar vs Asia' was the strongest performing idea. Increased recession fears and downside economic risk favoured exposure to more resilient businesses in the US with stronger balance sheets over those constrained by weak cash flows, refinancing issues and debt servicing. 'Equity - Strong Balance Sheets vs Market' benefitted as a result.
The increased divergence in monetary policy expectations across regions has led to an increase in the level of volatility among currencies, benefiting our 'Volatility - Global FX Volatility' idea. 'Interest Rates - Australia vs US' was another notable performer over the quarter as short term yields in Australia fell more than their US counterpart on the back of dovish comments from the Reserve Bank of Australia which indicated that it will moderate the pace of tightening going forward as economic growth slows and housing activity moderates. After a difficult period in August, 'Inflation - Short UK' recovered the bulk of the losses in September.
Persistent inflation and more hawkish central banks than expected meant that fixed income and risk assets faced increased headwinds. The fund's long credit ideas detracted from overall performance being negatively impacted by widening credit spreads and rising bond yields. 'Credit - US High Yield', 'Credit - US Investment Grade' and 'Credit - Selective Credit' all detracted by a similar order of magnitude. The rise in bond yields also exercised a negative pressure on our 'Interest Rates - Selective EM Debt' and 'Interest Rates - US' ideas.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191694316.pdfAugust, 2022
Being long the US Dollar was a positive contributing factor, with the currency being buoyed by its perceived 'safe haven' status coupled with expectations that the US Fed would be more aggressive in their tightening path relative to other central banks. Our long US Dollar positions vs a basket of Asian currencies, the South African Rand and the UK Pound contributed the most. 'Equity: European Banks' also delivered positive results as we were able to reduce our exposure and lock in gains before markets started to sell-off in the second part of the month.
'Inflation: Short UK' was one of the largest detractors in August as another jump in food and energy prices helped exacerbate inflation in the eurozone to multi-year highs. 'Interest Rates: Global Steepener' also detracted from overall performance after short-end rates spiked relative to long-end rates as investors digested hawkish comments by Federal Reserve Chair Jerome Powell at the central bank's annual symposium in Jackson Hole. Given the move higher in bond yields, 'Interest Rates: US' also ended the period in negative territory. Directional ideas within credit, most notably 'Credit: US Investment Grade' and 'Credit: Selective Credit' underperformed given the move higher in bond yields and a widening of credit spreads.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190861237.pdfJune, 2022
Our 'Inflation - Short UK' idea registered a steady recovery following May's decline as investor's may be starting to price in the possibility of peak inflation. Given its defensive characteristics, 'Equity - Strong Balance Sheets vs Market' benefitted from the negative market environment as more resilient businesses with stronger balance sheets outperformed those constrained by weak cash flows, refinancing issues and debt servicing. 'Currency - US Dollar vs Asia' and 'Currency - US Dollar vs UK Pound' contributed the most. The increased divergence in monetary policy expectations across regions has increased the level of volatility within currencies, benefitting our 'Volatility - Global FX Volatility ' idea.
At the other end, 'Credit - US High Yield' and 'Credit - Selective Credit' were amongst the main detractors over the period, being negatively impacted by a material widening in credit spreads and rising bond yields. Directional equity ideas also came under pressure in June with 'Equity - European Infrastructure', 'Equity - European Banks' and 'Equity - Diversified Alpha' leading the losses.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188995252.pdfMay, 2022
The Fund returned -4.09% in May 2022.
• The moves of major currencies during the first half of the quarter were partially reversed in May as China began to loosen its Covid-19 restrictions, and European central bankers took a more hawkish tone. During the month, the euro bounced off its five-year lows versus the US dollar, and the Australian dollar broke its one-year low versus the US dollar. P/E’s factors continue to indicate stronger growth in the US versus other parts of the world, and a strengthening of the US dollar, especially against the euro and the yen. • Currently, the main factors driving FX positioning are 1) relative growth expectations, where countries with higher growth expectations are more attractive, 2) long term rates, where higher rates are more attractive, and 3) capital flows, where investors have been buying US assets versus those of Europe or Asia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187900302.pdfApril, 2022
From a factor and style perspective, Growth underperformed the most as bond yields continued to rise, challenging the lofty valuations of some of these names under this new higher rate environment. Subsequently, the technology sector was the worst-performing. At the other end, defensive parts of the market, as well as Value sectors, fared better, e.g., consumer staples, utilities, health care, and energy. It was also a challenging month for bond markets with spiraling inflation putting further pressure on central banks to apply a more aggressive approach to raising interest rates. Against this backdrop, US treasuries extended their losing streak for a fifth straight month. Sovereign bonds in Europe also lost ground. In terms of yields, the 10-year Treasury note increased from 2.34% to 2.93%, with 10-year gilts moving from 1.61% to 1.91% and the 10-year German bund rose from 0.55% to 0.94%.
As highlighted earlier, the US Dollar performed strongly over the month, benefitting our 'Currency - US Dollar vs Asia', 'Currency - US Dollar vs UK Pound' and 'Currency - US Dollar vs Euro' ideas. The substantial repricing of interest rate hike expectations was a natural catalyst for a move higher in volatility across asset classes, including FX. Our 'Volatility - Global FX Volatility' idea performed well against this backdrop. The defensive characteristics of the 'Equity - Strong Balance Sheets vs Market' idea proved to be useful during a period where negative investor sentiment dominated market price action. At the other end, 'Currency - Japanese Yen vs US Dollar' was the main detractor in April as modest inflation in Japan relative to the US prompted the Bank of Japan to continue to keep interest rates at current or lower levels for the foreseeable future. As a result, the Yen depreciated to multi-year lows against the Dollar. 'Interest Rates - Emerging Market Debt' also detracted from performance with our long exposure to local currency Mexican government bonds (currency hedged) proving to be the main drag. Sentiment towards Mexican debt deteriorated over the month driven by higher interest rate hike expectations after data showed annual inflation touching multi-decade highs. The spread to US Treasuries has however remained flat over the year. 'Interest Rate - Yield Compression' was another detractor with 'Equity - China' and 'Credit - US High Yield' also naturally underperforming in light of the risk-off market environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187151500.pdfJanuary, 2022
Amid rising bond yields, markets with a higher tilt to the value factor performed well relative to the broader global equity market. Our 'Equity - European Energy vs Market' and Equity Energy ideas deliverd the strongest upside at portfolio level against this backdrop. The fund also benefitted from the 'Equity - Diversified Alpha idea as the more value-oriented building blocks within the idea prived to be resilient.As the other end, the inflation - short UK idea registerd a negative month, being adversely impacted by rising commodity prices as Omicron related demand fears eased and expectation of potentially tighter supply due to geopolitical.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183913322.pdfJuly, 2021
Overall, global equities registered only a modest gain in July with performance diverging quite significantly between various markets. US and Europe ex-UK led the way with both rising by around over the month, driven by strong corporate earnings. At the other end, Chinese equities fell sharply by around -13.6 , triggered by a regulatory tightening across the technology sector. Broadly speaking, Asian equities also had a poor month as many countries within the region saw a rise in COVID-19 cases which negatively impacted investor sentiment.
In fixed income markets, government bonds rallied strongly in a volatile month that saw yields drop to lows last seen in February. The yield on 10-year US treasuries fell to 1.13 at one point (20 July) before staging a mini-revival to close at 1.22, an overall decline of 25bps. Falling further into negative territory, German bund yields on the 10-year also dropped by 25bps, closing at -0.46. The yield on 10-year gilts fell from 0.72
0.57 . Longer-dated bonds outperformed as yield curves flattened. While it was a more subdued month for credit markets, yields on both sterling and euro-denominated investment grade and high yield bonds fell. Meanwhile, spreads widened marginally but remain close TO HISTORIC LOW
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/176518989-1.pdfJune, 2021
Market Review
Global equity markets continued their upward march in June with the US leading the pack following comments from the Federal Reserve Bank (Fed) suggesting that higher inflation will be transitory. The announcement led to some reversal in performance between ‘Value’ and ‘Growth’ with areas like tech and health care outperforming traditional value sectors such as financials. Europe was also a strong performer over the month, although returns varied significantly across regions. Germany and France performed well whilst Spain detracted significantly, meanwhile, Italy and UK were both broadly flat. Concerns about the rise in cases linked to the new Delta variant, and subsequent restrictions and delayed reopenings, have continued to impact investor sentiment. Elsewhere, emerging markets were generally weak with many markets registering negative returns over the month.
US treasuries sold off sharply following the Federal Open Market Committee's (FOMC's) announcement of a new plan which forecast two rate hikes of 25 basis points in 2023. Impact on 10-year treasuries was immediate with the yield rising 8.3 basis points on the day. Most of these gains were erased the following day as investors grew in confidence that the Fed would not let price pressures surge as high as some market participants were fearing. Thereafter, US bond markets rallied, drawing comfort from reassuring words from various Fed speakers, including Chair Powell, who noted that the FOMC will wait for actual evidence of actual inflation or other imbalances before moving interest rates higher.
Contributors to performance
June saw a strong hit rate of contributors versus detractors across the portfolio. Our 'Interest Rates - Yield Compression' idea performed well, driven by an aggressive flattening of the US Treasury yield curve where the front end of the curve moved higher. Moreover, with front end US rates moving higher this helped some of our long US dollar ideas with pairings against the Australian Dollar and Korean won attributing most within the 'US dollar vs Asia' idea. The Japanese yen appreciated against the euro which helped that idea, furthermore, our Asian equity exposures in Taiwan and China attributed to returns in the month.
At the other end, 'Equity - European Banks vs Market' was a notable detractor as the European Central Bank stepped away from any indication of monetary normalisation. 'Currency - US dollar vs Brazil', which changed to be 'Currency - Mexican Peso vs Brazil' in June, also detracted as rate hikes in Brazil attracted flows into the region. Our 'Interest Rates - Selective EM Debt' idea underperformed as some emerging markets embarked on rate hikes, seeing a broader sell-off across EM debt markets. This flowed through into our Mexican and South African debt holdings within the idea
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174770628-1.pdfMay, 2021
Market review
Financial markets broadly benefitted over the month driven by improving economic data and increased investor optimism. The success of vaccination programmes across many of the developed markets has been a key driver in the upward march for equity markets in particular. Global equities overall had a good month, albeit more muted than in April, with returns varying quite significantly across the regions. European equities outperformed most other markets, driven by the rising vaccination rates and the prospect of lockdowns easing across the region, as well as improving export demand driven by a global rebound. US equity market gains were much more muted, rising only marginally through the month - rising inflation and its implication on corporate margins has been the main concern for investors.
Elsewhere, emerging market equities had a good month with Russia, India and Brazil being the best performing. At a sector level, cyclical sectors such as financials, energy and basic materials rallied most.
In bond markets, US treasuries were broadly flat over the month. In Germany, the 10-year Bund yield rose marginally, whereas the Italian 10-year bond hit a ten-month high. Fears that central banks will start tapering appears to be the primary driver of recent weakness, however, most officials have continued to stress that they do not plan to tighten monetary policy any time soon. In currency markets, the US dollar weakened against most major currencies over the month, driven by rising inflation and fears on what that means for Fed policy going forward. Poor non-farm payroll data also drove some of the weakness. Meanwhile, commodities had another strong month with all the major markets (oil, gold, copper) seeing a rise in prices .
Contributors to performance
Performance was negative over the month stemming from detraction across a range of ideas. Most notable, ‘Equity - Taiwan Carry’ detracted from both the equity and currency components. Taiwan saw an increase in domestic issues in May, including a surge in COVID-19 cases. Additionally, the stock market fell with the broader technology sector sell-off. Currency ideas were also generally negative led by weakness of the US dollar versus select Asian currencies. ‘Inflation - Short UK Inflation’ and ‘Inflation - Short US Real Yields’ both fell during the period as well. On a positive note, the fund’s equity exposures were particularly beneficial as most markets across the globe rose over the period. The majority of our equity ideas contributed positively for the month: Australia, China, UK, Diversified Alpha, Equity Optionality, European Banks vs Market, Long European Mid-Caps. In addition ‘Interest Rates - Selective EM Debt’ was a strong performer
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173437542-1.pdfNovember, 2020
Market review
In November, global equities surged as favourable news related to COVID-19 vaccine development drove investor optimism. The Biden victory in the US presidential elections also appeared well received by the markets, which saw a reduced level of volatility. Investment grade and high yield credit markets also benefited from the same ‘risk-on’ backdrop. Government bonds, on the other hand, had a more choppy month as markets attempted to balance the more positive outlook with the implications of lock-down and a still raging pandemic. It was a rough month for the US dollar, which fell against all other G10 currencies in light of the broader ‘risk-on’ sentiment. In Europe, the Brexit saga continued but with the 31st December providing a final deadline for striking a trade deal, it feels an end may be in sight.
Contributors to performance
Performance was positive for the month.
Our more ‘risk-on’ ideas benefited from surging equity markets. The standout equity ideas were ‘Equity - Japan’, ‘Equity - UK’ and our Asian and Australian equity ideas. Equally strong were our selective credit and US high yield ideas. On the downside, the risk on move meant our idea preferring US small caps to US large caps underperformed, as well as a number of ideas where we are short equities, for example in India and European industrials and insurers. A rallying oil price also boosted our currency idea preferring the Norwegian krone to the British pound. However, this strong move in oil meant our ‘Commodity - Commodity Short’ detracted.
Summary of investment ideas
November saw us close, consolidate as well as add a number of ideas as we shifted our focus to the post- pandemic world. As part of our ongoing assessment of ideas and the make-up of the portfolio, we have reduced the complexity of a number of our ideas. In part, we felt the current investment climate provided a more comfortable backdrop for less nuanced, high-conviction ideas. Changes included consolidating some of our equity ideas which replicate the portfolios managed by other Invesco teams, into one idea, ‘Equity - Diversified Alpha’. We also closed out some of our short equity ideas, which benefit from falling markets. Additionally, we paired our short view of European industrials with a long position in US industrials. We also added five new ideas, including ‘Currency - Mexican Peso vs US Dollar’. Here, we can benefit from the relatively high yield of the Mexican peso and we also believe the country’s economy is highly competitive in the global market place, especially with likely improving US relations.
ticker: GTU0109AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://documentscdn.financialexpress.net/Literature/17842E121404BA0870405F6EE177BE93/162927161.pdf
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asset_class: Alternatives
asset_category: Macro
peer_benchmark: Alternatives - Macro Index
broad_market_index: Credit Suisse AllHedge Global Macro Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
The Invesco Wholesale Global Targeted Returns Fund aims to achieve a positive total return in all market conditions, targeting a gross return of 5% p.a. above the Bloomberg Ausbond Bank Bill Index with less than half the volatility of global equities over rolling three-year periods.
- The Strategy’s investment philosophy is based on the belief that positive total returns can be achieved across all market environments over a rolling three year period through an unconstrained approach to sourcing return ideas and through robust risk management.
- The GTR portfolio can have from five up to around 50 ideas at any one time (typically between 20 and 30).