Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. 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
Brewin's Gutteridge & Foster talk property with Standard Life's Baggaley

Brewin's Gutteridge & Foster talk property with Standard Life's Baggaley

Gutteridge and Foster discuss UK commercial property with Jason Baggaley, manager of the Standard Life Property Income investment trust

Brewin's Gutteridge asks Odey's Tim Bond two tough questions

Brewin's Gutteridge asks Odey's Tim Bond two tough questions

Gutteridge puts the heat on Odey's asset allocation maestro with a couple of tough questions.

Brewin's Foster & Gutteridge: searching for the yield of dreams

Brewin's Foster & Gutteridge: searching for the yield of dreams

Guy Foster and Ben Gutteridge discuss the latest upbeat US payroll report and how it has increased the probability of a first hike in interest rates in June.

Your Business: Cover Star Club

Profile: Creechurch Capital’s CEO on going the extra mile in a crowded market

Profile: Creechurch Capital’s CEO on going the extra mile in a crowded market

Growing a business is the main aim of many company owners but managing that growth in a controlled way is just as important

Wealth Manager on Twitter