The future of absolute return – investing in ideas

Understandably, investors could be bemused by the rollercoaster ride of markets through these Covid-19 times. More challenging though will be their consideration of where to achieve their returns from here on. We believe that our ‘investing in ideas’ approach with a focus on future returns and robust risk management can play a useful role in these challenging – and changing – times ahead.

Given the current environment, our central economic thesis remains cautious; whilst economies are re-opening quickly, a full recovery to previous levels of activity will take time. There is a big debate around inflation due to the unprecedented fiscal and monetary stimulus, however, we think inflation will continue to be very low for some time. The stimulus has injected liquidity into asset markets either through purchases of bonds directly by central banks or across the spectrum by other investors, and whilst this has taken bonds and equities back to expensive levels, it’s difficult to argue against the impact of cheap money.  

This has made us more wary of ‘guessing’ the future direction of either bonds or equities and tilted more towards capitalising on relative value ideas within asset classes, sectors or across geographies. In currencies, we have long been fans of the defensive characteristics of the US dollar but, given its recent travails, we have only focused on pairing it against vulnerable Asian currencies. Accessing volatility as an asset class is something our unconstrained process allows; it certainly feels like we are set for more volatile times!

As part of our research through the Covid-19 period, we have been challenging some of the orthodoxies that conventional investing has relied upon in recent times. Here, we showcase the thinking of three of the team’s fund managers to illustrate some of the challenges that investors now face.

• Sebastian Mackay looks at how the extremity of the impact of Covid-19 forced the hand of many policymakers into unconventional territory, which may have unintended consequences, providing investors an opportunity to assess the economic and market “winners and losers”.
• Diversification is a practice many laud, but often can be criticised as a trade-off for returns. While periods of volatility (as we saw in Q1 2020) reward diversification, Gwilym Satchell discusses our belief that a focus on independent sources of return for a portfolio can deliver robust results in both return and risk through all market environments.
• A multi-year search for yield in a low-rate environment was only made worse by the dividend slashing that ensued after the initial economic hit from Covid-19. Georgina Taylor has updated her view on how investors are now, more than ever, being forced to think differently about reliable income sources as traditional sources come under increased pressure.

Finally, returning to the office in Henley-on-Thames for the first time since March reminds me of my first day here in January 2013.  Since forming the Invesco Multi Asset team, our goal has been to build and leverage an experienced and varied team of macro specialists. Our portfolios of “ideas” – within the Invesco Global Targeted Returns and Invesco Global Targeted Income strategies (please find the investment risks at the bottom of this page) – are built around a concept of diversification which starts with scanning the unconstrained macro landscape to find good, long-term investment ideas. The diverse backgrounds found within our team enables us to have the necessary breadth and depth to be effective in our approach.