Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

Invesco Perpetual takes liquidity to 17% on bond fears says Read

Invesco Perpetual takes liquidity to 17% on bond fears says Read

Citywire + rated Paul Read has said Invesco Perpetual is running around 17% liquidity across the £23.5 billion it runs in fixed income portfolios, warning it is a necessary buffer against potential runs on the asset classes.

The co-manager of the Invesco Perpetual Corporate Bond and Monthly Income Plus funds, said he was banking ‘a lot’ on cash equivalents and well traded bond issues with a maturity below 12 months.     

‘Part of the reason is that, in the market, when it is needed, liquidity is rubbish,’ said Read. ‘Investment banks are under pressure, and there is not much desire to hold inventory.'  

Data issued by the Federal Reserve Bank of New York shows that dealer corporate bond inventory has declined from a peak of above $250 billion pre-crash to a recent figure closer to $20 billion.

‘We saw this in last year’s “taper tantrum” in May/June – a lot of liquidity tried to get through a small door. We run fairly sticky money however, and are seen as someone you come to when you need a bid, so my hope would be that we would be able to pick something up if it came to it.’

While he said that on balance he remained ‘sanguine’ over the course of the remainder of the year, he added that the reach for yield at least partially reminded him of the pre-crash complacency.

‘My worry is that we are facing something like a 2006/07 period where the market continues to grind forward and it is just very difficult to make money for people,' he said.

‘Being defensive can be painful and is a difficult process over the medium term but we are just going to have to live with that – we have made a lot of excess returns in recent years and we may now have to sit it out a bit.

‘We are not out here to beat a drum and say that this is a market that you have to be buying.’

He reiterated hisview first offered last year that over the medium term blue chip equity returns yielding over the equivalent corporate debt with the strong potential to increase dividends made fixed income a second-tier asset class.

While the fund has done very well out of the recovery in the European banking system, he added that remained much more sceptical about the current craze for contingent convertible (Coco) issuance.

‘You have to remember that these are deeply subordinated and in the event of any difficulty, they will be absorbing capital losses. It’s not like old-style subordinated debt there’s no pussyfooting around.’

Over the last three years the Invesco Perpetual Corporate Bond fund has returned 24.9% versus a peer group average of 21.29% while the Invesco Perpetual High Yield fund has returned 42.28% versus an average of 26.99%.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Investment Pulse: the highs and lows of 2014

Investment Pulse: the highs and lows of 2014

This week's Investment Pulse looks back at some of the biggest stories of the year as well as looking forward to 2015.

Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter