Built-in safety net for Invesco growth fund

In order to meet the goal of keeping costs down, this product is on a daily watch, writes Roxane McMeeken.

Invesco has launched a new fund designed to capture opportunities in global growth equities, while protecting investors from the worst ravages of this unforgiving market. This is not a capital-guaranteed product, however. Instead, the fund aims to preserve capital through an innovative investment process, thereby reducing costs to the investor.

The Invesco Capital Shield Fund invests in equity, fixed income, low risk cash and cash equivalent instruments worldwide.

Asset mix

Alain Gerbaldi, chief investment officer, Invesco Continental Europe, says that depending on the market environment, bonds can make up as much as 100 per cent of the underlying assets in the fund. The upper limit for equity investments is set at 50 per cent. The asset mix is adjusted constantly with the help of a proprietary asset allocation model.

The idea is to combine the advantages of active asset allocation with a dynamic value preservation mechanism, which protects at least 90 per cent of the capital originally invested.

The safety net (or price floor) is adjusted on a daily basis. If the fund’s safety net reaches a given level, the product can invest in more risky assets. The vehicle is open-ended, which allows investors to choose their own investment timeframe.

Bernhard Langer, chief investment officer, Invesco Germany, said that the overriding goal of the fund is to keep costs down, especially when it comes to riskier and typically more expensive investments. Because of this any equity investments will be made through listed futures, unless the safety net reaches a very high level. In this case, the physical equity portfolio will be well diversified and free of any style bias, Mr Langer says. “We would build a MSCI Europe style portfolio, or even a global one, depending on market conditions, consisting of 40–60 names.” Bond positions will favour lower risk, money market related instruments.

While the fund is available throughout continental Europe, Mr Langer says that there are no plans to make the product available to UK investors, since Invesco already offers a structured “UK enhanced portfolio”. He reveals that a dollar-denominated version of the new fund is soon planned for sale in Asia.

The mechanics

The Invesco Capital Shield Fund works in the following way: assuming, for example, an initial net asset value of e10, the initial price floor will be e9. If the net asset value reaches e10.50 the following day, the price floor will automatically be raised to e9.45, but it can never drop back below this level. Every time the net asset value rises, the price floor is raised accordingly, but it is not lowered when the net asset value declines.

Fund facts

• Launch: May 9, 2003
• Fund manager: Marin Kolrep
• Currency: euro
• Initial charge: 5.25%
• Annual management fee: 1%
• Minimum investment: e1500
• Domicile: Luxembourg
• Registered: Austria, Belgium, Finland, France, Germany, Jersey, Netherlands, Norway, Portugal, Spain, Sweden.

Langer: offer only on the Continent