Invesco Perpetual Enhanced Income has announced its interim results for the Six Months to 31 March 2016. During the period, which the managers describe as a volatile period for high yield bond markets, the company provided an NAV total return of 3.8% and a share price total return of 4.7% (the share price premium to NAV increased from 1.6% to 2.5%). The board say that, as a result of significant market volatility, nearly all of the NAV’s total return came from revenue, with only 0.1% from capital appreciation. This compares against favorably against the 3 month LIBOR return of +0.6%.
Rhys Davies has been promoted to portfolio manager to co-manage the Company’s portfolio alongside Paul Causer and Paul Read, with effect from 16 May 2016. Rhys, a CFA charter holder, has been deputy portfolio manager of the Company since 2 June 2014, having joined Invesco in 2002.
In terms of portfolio activity, the managers say that they used the period of market stress, earlier this year, to add select bonds that they thought were more attractively priced. As well as adding high yield bonds that they liked, they also increased the portfolio’s exposure to subordinated bank bonds, non-financial corporate hybrid bonds and subordinated insurance bonds. In terms of overall positioning, the managers say that the portfolio remains defensive. They hold a core of high yield corporate bonds, focused on seasoned issuers that they consider to be default-remote. In addition they hold significant exposure to subordinated bank debt (in their view, the creditworthiness of the banking sector has improved significantly following regulatory and structural reforms and these bonds offer an attractive balance of risk and return).
The managers say that there is also a sizeable allocation to non-financial hybrid bonds across sectors including telecoms and utilities. They believe the subordination risk of these more junior debt instruments is attractive in the context of these companies’ relatively strong balance sheets. They say that many of the securities held are in high yielding investment grade names. They also say that they are holding a relatively high level of cash in the portfolio, which should afford some protection from weaker markets and also positioning the portfolio to take advantage of more difficult market conditions, such as we have seen in the past six months. Taking into account the cash position, net borrowing fell from 33% to 20% by 31 March 2016.
In terms of outlook, the managers say that, following the recovery in January and February, many areas of the high yield bond market are again, in their view, quite fully valued. However, they also comment that the demand for income continues to be a powerful driver of returns and the additional measures announced by the ECB are likely to provide further support to the sector. On balance they think it prudent to maintain their defensive approach. There will, they expect, be further bouts of volatility through 2016 and they believe that their defensive stance should help mitigate the effect of such periods whilst also potentially providing the opportunity to add further exposure at attractive levels. Overall, they say that their focus remains on providing a good level of income by concentrating on issuers they see as default-remote and on bonds where they think the balance of reward to risk remains relatively attractive.
Invesco Perpetual Enhanced sees income drive returns : IPE