Winnersrationale

In addition to grappling with ultra-low yields across much of the credit universe, inflation has been quickly rising up the list of risks which private bank clients face heading into 2022. Invesco has come up with a solution to both dilemmas.

The asset manager’s US Senior Loan Fund boasts equity-like returns while providing a hedge against risks from increases in interest rates and duration in more traditional bond products.

In addition to its low level of correlation with other asset classes — which helps to mitigate overall portfolio volatility — the floating rate nature of the Invesco fund means investors stand to benefit from likely interest rate rises in the coming months. While senior loans lie below investment grade debt in the capital structure, they are secured by company assets and prioritised for repayment in the event of a default.

The class H-shares of the fund had returned 7.02% before fees in August 2021 YTD, versus 3.98% for its benchmark, the Credit Suisse Leveraged Loan index, translating to an outperformance of 304 bps. On a three- and five-year basis, the fund beat its benchmark with annualised returns of 4.97% and 5.3%, respectively, with much of that derived from income.

Much of 2021’s alpha was generated by credit selection, with the fund benefiting from a rebound in markets from the disruptions caused by COVID-19 the prior year. Some of the fund’s high-conviction positions included cinema operator Cineworld, home alarm company Monitronics and credit card issuer NewDay.

The fund took advantage of climbing oil prices via energy groups including Fieldwood Energy, Aquadrill and Crestwood, whose credits were trading at substantial discounts coming into 2021.

Total assets under management for the fund reached US$5.72 billion as of August 2021, while it benefited from inflows from private banking platforms across Asia-Pacific during the period under consideration.

Invesco is Asian Private Banker’s Best Fund Provider – US Bond for 2022.