- Invesco navigates challenging markets to benefit from rising yields, offering investors exposure to income and capital growth opportunities
- Strategy adds new positions and increases existing holdings in high-quality high yield
- The £2.2bn Invesco Monthly Income Plus Fund (UK) is ranked top quartile and has outperformed1 over one, three, five and 10 years
Taking a cautious approach to positioning at the start of the year, namely low duration (interest-rate sensitivity) and lower credit risk, has allowed Rhys Davies, co-manager of the Invesco Monthly Income Plus Fund (UK) greater flexibility and the opportunity to make better value purchases in the bond market in recent months.
Increasing corporate bond yields reflect the significant move higher in government bond yields. This has been driven by high levels of inflation and exacerbated by the second-order effects of the Russian invasion of Ukraine.
The yield on the ICE European Currency High Yield index started the year at 3.4% and is now above 5%, a level last seen during the Covid related weakness in June 20202
With yields looking more attractive, Davies has been finding more opportunities for the Invesco Monthly Income Plus Fund (UK), which invests in a portfolio of corporate and government debt securities and equities with the aim to achieve income and capital growth over the medium to long term.
Recently activity had included adding bonds that had been analysed at the time they were issued, but which Davies had declined to buy at that time. Instead, he’s been able to add at lower prices to get a more attractive entry point.
These include Modulaire, a leaser of temporary buildings, (purchased below issue price at a yield of 8.3%), as well as bonds issued by Barclays and Santander (these are lower yielding bonds but purchased at prices 15-20% below where they were issued in 2021).
Davies also added to existing positions that have suffered price falls, such as Gatwick Airport (at a yield of 6.4%), Rolls Royce (at a yield of 4.9%) and National Grid (yielding 4.9%). All of these purchases were made at far more attractive yields than were on offer just six months ago.
Consistently delivered income and performance
The Fund is a top quartile performer over all time periods, returning 2.72% over one year, 18.59% over three years, 24.79% over five years and 75.48% over ten years, against benchmark (Investment Association Sterling Strategic Bond Sector) performance of -2.28%, 7.95%, 12.56% and 45.23% respectively.
The equity allocation has helped deliver capital appreciation over the long-term. The fund’s yield is consistently among the highest in its peer group.
Rhys Davies, Fund Manager, Invesco Monthly Income Plus Fund (UK), said: “Following years of low interest rates and falling bond yields we are now seeing higher yields and more volatility in markets. This has provided the opportunity to deliver attractive levels of income for investors as well as the potential for capital growth.
”All of the purchases mentioned were made at far more attractive yields than were on offer just six months ago. Adaptability will be key to navigating this investment backdrop and as we are not constrained by credit, sector or geographical limitations, we can go further in the search for yield and are excited about the opportunities that lie ahead.”
Owen Thomas, Head of UK Advisory Sales at Invesco, said: “The requirement for a regular level of income has long been an important theme for investors and the Invesco Monthly Income Plus Fund (UK) has an extensive track record of delivering just that through a flexible, unconstrained approach which offers exposure to a wide universe of bonds and equities.
“This has allowed the fund to effectively capitalise on not only income but also growth opportunities across market cycles.
“The team leverages more than 20 years’ experience of investing for income to deliver consistent outperformance and a high level of income, which have contributed to it being one of the highest income producing funds in its sector and a top choice for income investors.”