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Invesco Perpetual Enhanced positioned itself for Brexit

Invesco Perpetual Enhanced Income has announced results for the year ended 30 September 2016. Over the period, the NAV total return was 15.7% which compares to a total return for the Merrill Lynch European High Yield Bond index (Sterling Hedged) of 9.5%; the Sterling Investment Grade Bond Index return of 16.3%; and United Kingdom Gilts returning 13.2%. The total return to shareholders, based on the share price with dividends reinvested, was 19.0%. The share price rose from 69.8p at the start of the year to 77.4p, an increase of 10.9%. The revenue return was 4.5p per share. The Board intends to maintain the annual dividend of not less than 5p per share.

The company gut its gearing over the period. It started the year with gross borrowing of 39% and this was decreased so that at the year end gross borrowing was 25%. Taking the cash position into account, net borrowing fell from 33% to 16%, and average net borrowing for the year was 21.0%.

There’s no real performance attribution information inn the statement but they do include a “portfolio strategy” section we have reproduced below:

“In terms of positioning we remain defensive, with a relatively high allocation to liquidity (cash and government bonds). Our exposure is skewed toward high quality, high yield bonds that we consider carry a lower risk of default. Many of our holdings are in the financial sector, particularly subordinated bank capital where our largest exposure is to Additional Tier 1 (AT1) bonds. The volatility we have seen in the financial sector over the past 12 months has given us opportunities to add exposure to names in this sector at relatively attractive prices. Financials as a whole have underperformed the wider credit market and we feel that the yields available offer value compared to many other areas. By 30 September 2016, we had raised AT1 exposure to 8%. In our view, the creditworthiness of the banking sector, which has improved significantly since the global financial crisis remains an important supportive factor for this sector.

We also hold a number of hybrid bonds across other sectors and took the opportunity to increase exposure during periods of market weakness. As at 30 September 2016, non-financial hybrid bond exposure represented 10% of the Company.

In the lead up to the Brexit referendum, the market’s expectation was that there would be a ‘remain’ vote. We believed this offered us an opportunity to hedge against a ‘leave’ vote and we took a number of measures to mitigate the negative effect we expected this would have on risk markets. This included increasing our exposure to the US dollar and raising our allocation to cash and US Treasuries. We are pleased to report these measures proved effective.”

IPE : Invesco Perpetual Enhanced positioned itself for Brexit

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