Invesco Perpetual Tactical Bond Accumulation Units

Paul Read and Paul Causer have built an outstanding reputation managing Invesco Perpetual's range of fixed interest funds since the mid-1990s. We therefore awaited the launch of the Invesco Perpetual Tactical Bond Fund at the start of February with much excitement. The fund promised the combination of an experienced management team and the flexibility for them to move freely between bonds of all types to maximise returns. Six months on, how has the fund fared?

Early signs are promising and the fund has outperformed the sector, although past performance is not a guide to the future. It is also worth noting this has been achieved with significant volatility as the managers have primarily been investing in higher yield bonds, which are higher risk.

The managers still feel many of the best opportunities lie in higher yield bonds. Their view (which we share) is that any interest rate rises this year will be modest and rates will remain low for several years, so investors in higher yield bonds could receive an income significantly higher than cash, albeit with more risk of their capital and income fluctuating in value. Whilst a double-dip recession could cause a rise in companies defaulting on their bonds, Paul Read and Paul Causer are focusing on better quality high yield bonds, which they view as offering more than adequate compensation for the risk of default.

At the higher quality end of the spectrum they view bonds issued by banks and other financial companies as a source of higher yields and a particular area of value. The fund has also been holding cash of 20% or more since launch, which allows the managers to quickly take advantage of opportunities as they emerge and adapt quickly to changes in the economic environment.

Their general view is that the economic backdrop will be positive for bond markets as low interest rates is likely to increase the demand for assets which provide more income. They believe this will outweigh lingering concerns about the poor state of finances in Portugal, Ireland, Italy, Greece and Spain, which could have a knock-on effect elsewhere. In the case of Greece they feel the most likely outcome is a restructuring of debt, which would ultimately classify as a default and result in losses for Greek creditors. However, they are more confident about Spain, Italy and Portugal, which they believe to be in better shape. Indeed, they have been buying some short-dated Spanish and Italian bonds, taking advantage of the significantly higher yields available compared with German bonds.

Whilst corporate bonds are now less of a bargain compared with last year, Paul Read and Paul Causer believe they are still an attractive asset class given the background of low interest rates and robust company balance sheets. The Invesco Perpetual Tactical Bond Fund has no particular income objective, which gives the managers the full flexibility to position the portfolio according to where they see the best opportunities. US or European bonds can be used as well as those from the UK which adds currency risk. If you are simply looking to maximise profits from the corporate bond market, this fund remains an excellent choice in my view and it remains on our Wealth 150 list of favourite funds in each sector. However, investors whose priority is seeking a consistent level of income should consider more traditional bond funds. Please note this is a higher risk corporate bond fund, so investors should expect periods of volatility and be aware the fund has the capacity to use derivatives.