What are active funds?

An active fund is managed with the aim of generating returns greater than the relevant markets, as measured by an index. Active fund managers base their stock buying and selling decisions on several factors including:

• Market conditions
• Political climate
• State of the economy
• Company-specific factors (e.g. profitability, market share)

Depending on the fund’s objective, an active fund manager may have little or no constraint on their investment choice. Where this is the case, they can select what they consider the most promising opportunities, regardless of geography, sector, style, or size.

Benefits of active

Ability to outperform:

• Potential to outperform compared to a market index by taking advantage of any mispricings.
• Active managers have the potential to minimise losses in a falling market by investing in shares outside of the index or benchmark.
• Active managers can often thrive during times of heightened market volatility – like we are seeing today due to Covid-19 – as the price of assets can fluctuate wildly and lead to greater opportunities.

Flexibility:

• Unlike passives where the fund will track an index or benchmark, an active fund manager can invest however they want, based on their views on the market.
• There is also no “house view” at Invesco, fund managers are able to freely express their best ideas in their portfolios.
• The ability to invest outside of any particular index or benchmark also means that the pool of assets to choose from is by default a bigger one, thereby increasing the opportunity set.

Risk management:

• Active managers will often carry out extensive due diligence on a company before they invest in it.
• In areas where coverage is already low and reporting standards might not be as stringent (e.g. small cap companies, emerging markets), thorough research and analysis can often provide an edge, as well as being a source of risk management.

Engagement:

• The real value-add of active investment is the potential for engagement with companies. Active investors have access to boards and senior management and can use their AGM votes and engagement to assert influence.
• At the same time, they are able to bear their views on a wide range of subjects, particularly in areas where the data alone struggles to make a judgement.

Technology and Active

• We’ve built an innovation programme that aims to embed technology in every operational decision, including those on the investment floor.
• We’ve also created Invesco ESGintel. This tool allows us to give companies we invest in a unique ESG rating by combining our own in-depth research and engagement with analysis from external sources. We can then form a better view of the ESG risks and opportunities of the companies we invest in.
• Another recent innovation is Essentia Analytics, allowing us to spot and understand behavioural biases. Active fund managers are under a lot of pressure, so this technology helps them by revealing behavioural insights that can improve their investment skills and fund performance.

Invesco’s capabilities

• Equities: We offer a range of products from a broad global strategy to a wide selection of regional portfolios.
• Multi-Asset: From low-maintenance fund of fund investment solutions to income and growth targeted multi asset portfolios.
• Fixed Interest: Using our 25-year heritage of fixed interest investing to deliver investment excellence for bond portfolios.

At Invesco, we don't follow benchmarks or have a ‘house view’ but allow the fund managers the freedom to think for the long term in a culture of idea sharing, collaboration and debate. Different viewpoints are encouraged, which we think leads to better outcomes for investors. Rigorous research enables the analysts to bring forward the best ideas for consideration across portfolios, and continuous monitoring of existing holdings ensures that the balance of risk and reward remains where the fund managers want it.

Through geographic, market cap and investment mandate nuances, all the funds provide diversification potential for our clients. By being truly active, our fund managers not only have the potential to grow money faster than an index, but also to preserve capital more effectively in situations where the economic outlook is deteriorating.