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Invesco: A Deeper Look At the Performance

Stock Analysis Pic C

Invesco Ltd. is one of the most well-known investment firms in the country. Their operations span over 20 different countries around the world and are involved in investment management, wealth management, banking, and alternative investing. With over 8 decades of business under their belt, the Atlanta based firm has grown to include over 100 different investment solutions. Invesco agreed to pay $450 million in a settlement with the Attorneys General of New York, Colorado and the SEC. This was the result of allegations of improper trading practices. As of 2013, Invesco had $4.6 billion in annual revenue, $930 million of net income, over three quarters of a trillion dollars in assets under management, and over 6,000 individual employees. In fact, they are even traded on the New York Stock Exchange (TICKER: IVZ). Without knowing anything in particular about the firm, these general descriptions indicate a company that is valuable in terms of the solutions and services they offer. Why would you think differently?

We have made an effort over the last 17 years to uncover the real truth behind the “value” the active management community has made and help investors understand the illusion of “skill” that the actively managed mutual fund industry attempts to sell every single day of the year. Analyzing the biggest fund management companies around the world have yielded similar results, all pointing to what is becoming more and more of an empirical truth. It is extremely difficult to beat the market. So much so that attempting to beat the market is diminished to nothing other than the most sophisticated forms of gambling our world has even seen. Invesco, in terms of their fund strategies, falls victim to this same truth. We have done similar analyses for companies such as Wells FargoMFS Investment ManagementJP MorganLord AbbottUSAAMidas FundsThriventAmerican FundsFidelity Part 1Fidelity Part 2Oppenheimer Funds and T. Rowe Price. The results have been amazingly similar. 

Our analysis begins with an examination of the costs associated with their strategies. It should go without saying that if investors are paying a premium for investment “expertise,” then they should be receiving above average results consistently over time. The alternative would be to just accept a market's return, less a much lower fee, via an index fund.

The costs we examine include expense ratios, front end and deferred loads, and 12b-1 fees. These are considered the “hard” costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds. Commissions and market impact costs are real costs associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades taken by portfolio managers. We can estimate the amount of cost associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in 1 year. This is considered an active approach and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities to short term and long term capital gains distributions relatively to incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 78 Invesco funds that have at least 3 years of performance history. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then click the link to see the Alpha Chart. Also remember that this is what is considered an insample test, the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name (Click Link for Alpha Chart) Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Deferred Load Max Front Load Global Category
Invesco American Value A MSAVX 34.00 1.28 0.25   5.50 US Equity Mid Cap
Invesco Asia Pacific Growth A ASIAX 23.00 1.45 0.25   5.50 Asia ex-Japan Equity
Invesco Balanced-Risk Allc A ABRZX 10.00 1.27 0.25   5.50 Moderate Allocation
Invesco Balanced-Risk Commodity Strat A BRCAX 17.00 1.60 0.25   5.50 Commodities Broad Basket
Invesco Balanced-Risk Retire 2020 A AFTAX 12.00 0.95 0.25   5.50 Target Date 2000-2020
Invesco Balanced-Risk Retire 2030 A TNAAX 17.00 1.13 0.25   5.50 Target Date 2021-2045
Invesco Balanced-Risk Retire 2040 A TNDAX 28.00 1.23 0.25   5.50 Target Date 2021-2045
Invesco Balanced-Risk Retire 2050 A TNEAX 22.00 1.34 0.25   5.50 Target Date 2046
Invesco Balanced-Risk Retire Now A IANAX 19.00 0.81 0.25   5.50 Target Date 2000-2020
Invesco CA Tax-Free Income B CLFBX 12.00 0.83 0.24 5.00   US Municipal Fixed Income
Invesco Charter A CHTRX 47.00 1.08 0.25   5.50 US Equity Large Cap Blend
Invesco Comstock A ACSTX 17.00 0.83 0.25   5.50 US Equity Large Cap Value
Invesco Convertible Securities B CNSBX 45.00 1.63 1.00 5.00   Convertibles
Invesco Core Plus Bond A ACPSX 537.00 0.86 0.25   4.25 US Fixed Income
Invesco Corporate Bond A ACCBX 228.00 0.91 0.25   4.25 US Fixed Income
Invesco Diversified Dividend A LCEAX 11.00 0.83 0.25   5.50 US Equity Large Cap Value
Invesco Emerging Markets Equity A IEMAX 97.00 1.55 0.25   5.50 Emerging Markets Equity
Invesco Emerging Markets Flexible Bd A IAEMX 50.00 1.24 0.25   4.25 Emerging Markets Fixed Income
Invesco Endeavor A ATDAX 27.00 1.29 0.25   5.50 US Equity Mid Cap
Invesco Equally-Wtd S&P 500 B VADBX 21.00 1.29 1.00 5.00   US Equity Large Cap Blend
Invesco Equity and Income A ACEIX 69.00 0.80 0.25   5.50 Moderate Allocation
Invesco European Growth A AEDAX 14.00 1.38 0.25   5.50 Europe Equity Large Cap
Invesco European Small Company A ESMAX 19.00 1.46 0.25   5.50 Europe Equity Large Cap
Invesco Exchange ACEHX 0.00 0.54       US Equity Large Cap Blend
Invesco Floating Rate A AFRAX 59.00 1.04 0.25   2.50 US Fixed Income
Invesco Global Core Equity A AWSAX 66.00 1.32 0.25   5.50 Global Equity
Invesco Global Growth A AGGAX 24.00 1.31 0.25   5.50 Global Equity
Invesco Global Health Care A GGHCX 47.00 1.05 0.25   5.50 Healthcare Sector Equity
Invesco Global Infrastructure A GIZAX 84.00 1.40 0.25   5.50 Other Sector Equity
Invesco Global Low Volatility Eq Yld A GTNDX 94.00 1.60 0.25   5.50 Global Equity
Invesco Global Market Neutral A MKNAX 77.00 1.62 0.25   5.50 Market Neutral
Invesco Global Markets Strategy Y GMSHX 0.00 1.41       Moderate Allocation
Invesco Global Opportunities A IAOPX 71.00 1.36 0.25   5.50 Global Equity
Invesco Global Real Estate A AGREX 43.00 1.44 0.25   5.50 Real Estate Sector Equity
Invesco Global Real Estate Income A ASRAX 60.00 1.23 0.25   5.50 Real Estate Sector Equity
Invesco Global Small & Mid Cap Gr A AGAAX 25.00 1.36 0.25   5.50 Global Equity
Invesco Gold & Precious Metals Invstor FGLDX 35.00 1.49 0.25     Precious Metals Sector Equity
Invesco Greater China A AACFX 130.00 1.88 0.25   5.50 Greater China Equity
Invesco Growth Allocation A AADAX 15.00 1.16 0.25   5.50 Aggressive Allocation
Invesco Growth and Income A ACGIX 23.00 0.84 0.25   5.50 US Equity Large Cap Value
Invesco High Yield A AMHYX 110.00 1.02 0.25   4.25 High Yield Fixed Income
Invesco High Yield Muni A ACTHX 17.00 0.86 0.25   4.25 US Municipal Fixed Income
Invesco International Allocation A AINAX 9.00 1.45 0.25   5.50 Global Equity Large Cap
Invesco International Companies A IZIAX   1.33 0.25   5.50 Global Equity Large Cap
Invesco International Growth A AIIEX 20.00 1.31 0.25   5.50 Global Equity Large Cap
Invesco International Small Company A IEGAX 8.00 1.53 0.25   5.50 Global Equity Mid/Small Cap
Invesco International Total Return A AUBAX 135.00 1.10 0.25   4.25 Global Fixed Income
Invesco Limited Term Municipal Income A2 AITFX 15.00 0.38     1.00 US Municipal Fixed Income
Invesco Low Volatility Equity Yield A SCAUX 101.00 1.15 0.25   5.50 US Equity Large Cap Value
Invesco Mid Cap Core Equity A GTAGX 54.00 1.21 0.25   5.50 US Equity Mid Cap
Invesco Mid Cap Growth A VGRAX 61.00 1.19 0.25   5.50 US Equity Mid Cap
Invesco MLP A ILPAX 107.00 1.50 0.25   5.50 Energy Sector Equity
Invesco Moderate Allocation A AMKAX 14.00 1.07 0.25   5.50 Moderate Allocation
Invesco Multi-Asset Inflation A MIZAX 34.00 1.36 0.25   5.50 Cautious Allocation
Invesco Municipal Income A VKMMX 10.00 0.87 0.25   4.25 US Municipal Fixed Income
Invesco NY Tax Free Inc A VNYAX 13.00 0.95 0.25   4.25 US Municipal Fixed Income
Invesco PA Tax Free Inc A VKMPX 13.00 1.01 0.25   4.25 US Municipal Fixed Income
Invesco Pacific Growth B TGRBX 137.00 2.53 1.00 5.00   Asia Equity
Invesco Premium Income A PIAFX 120.00 1.05 0.25   5.50 US Fixed Income
Invesco Real Estate C IARCX 23.00 1.99 1.00 1.00   Real Estate Sector Equity
Invesco S&P 500 Index A SPIAX 4.00 0.58 0.25   5.50 US Equity Large Cap Blend
Invesco Select Companies A ATIAX 14.00 1.20 0.25   5.50 US Equity Small Cap
Invesco Select Opportunities A IZSAX 18.00 1.52 0.25   5.50 Global Equity
Invesco Short Duration High Yld Muni A ISHAX   0.79 0.25   2.50 US Municipal Fixed Income
Invesco Short Duration Inflation Prot R5 ALMIX 106.00 0.30       US Fixed Income
Invesco Short Term Bond C STBCX 250.00 1.04 0.65     US Fixed Income
Invesco Small Cap Discovery A VASCX 63.00 1.33 0.25   5.50 US Equity Small Cap
Invesco Small Cap Equity A SMEAX 29.00 1.29 0.25   5.50 US Equity Small Cap
Invesco Small Cap Growth A GTSAX 30.00 1.20 0.25   5.50 US Equity Small Cap
Invesco SmallCapValue A VSCAX 44.00 1.14 0.25   5.50 US Equity Small Cap
Invesco Strategic Income A SIZAX 145.00 0.85 0.25   4.25 US Fixed Income
Invesco Strategic Real Return A SRRAX 25.00 0.82 0.25   2.50 Inflation Linked
Invesco Summit P SMMIX 49.00 0.89 0.10     US Equity Large Cap Growth
Invesco Technology Investor FTCHX 67.00 1.30 0.15     Technology Sector Equity
Invesco Technology Sector B IFOBX 66.00 2.33 1.00 5.00   Technology Sector Equity
Invesco Unconstrained Bond A IUBAX 151.00 1.04 0.25   4.25 Other Fixed Income
Invesco US Government A AGOVX 76.00 0.96 0.25   4.25 US Fixed Income

On average, an investor who utilized an Invesco fund has experienced a 1.19% expense ratio, a 0.30% 12b-1 fee, and a 5.11% front-end load. These fees can have a substantial impact on an investor’s overall accumulated wealth if it is not backed by superior performance. It is important to mention that these performance figures do NOT include the the front-end load. If an investor paid the front-end load, their return is worse than the results we show here. Not all investors pay the front-end load depending on who sold the fund to the investor, if the fund is in a qualified retirement plan, etc. The average turnover ratio is 57.82%, which implies an average holding period for each individual stock or bond of just under 2 years. This also implies that Invesco, on average, makes investment decisions based on short-term outlooks, which means they trade quite often. Again, this is a cost that is not itemized to the investor, but is defintely embedded in the overall performance. In contrast, most index funds have very long holding periods--decades, in fact, thus deafening themselves to the random noise that accompanies short-term market movements, and focusing instead on the long term.

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Invesco’s “expertise.” We compare each of the 78 strategies since inception and against its current Morningstar assigned benchmark to see just how well each has delivered on their perceived value proposition. We have included alpha charts for each strategy at the bottom of this article. Here is what we found.

  • 67% (52 funds) have underperformed their respective benchmarks since inception, having delivered a NEGATIVE alpha
  • 33% (26 funds) have outperformed their respective benchmarks since inception, having delivered a POSTIVE alpha
  • 3.8% (3 funds) have outperformed their respective benchmarks consistently enough since inception to provide 95% confidence that such outperformance will persist as opposed to being based on random outcomes 

In general, we conclude that the Invesco family of funds has no expectation of producing above-average returns for their investors. The vast majority (67%) of their funds didn’t beat the average since their inception. The inclusion of statistical significance is key to this exercise as it indicates which outcome is the most likely vs. random-chance outcomes. Now, let's take a look at the funds that produced a statistically significant alpha at a 95% confidence level.

The 3 funds that had a positive alpha at the 95% confidence level were:

  • Asia Pacific Growth Fund (ASIAX)
  • European Growth Fund (AEDAX)
  • European Small Company Fund (ESMAX)

Before we get into the specifics of why we believe that this outperformance is based off of pure luck, we would just like to remind readers that based on a sample of 78 individual funds, we would expect 2 (1 in 40) to have a statistically significant alpha just by chance alone. Therefore, it is hard to decipher whether or not Invesco has displayed some skill or this is just example of random outcomes from a large sample size. To give a similar analogy, if we filled Yankee Stadium (54,251 max capacity) and gave everyone a coin to flip, just by random chance a handful of individuals might get 10 heads in a row. Are they skilled coin flippers? Of course not. 

Further, it is extremely common to see bad benchmarking amongst foreign and international investment strategies. Because Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio. For example, the benchmark for the Asia Pacific Growth Fund is the MSCI AC Far East Ex Japan Index. In comparison to its benchmark, the Asia Pacific Growth Fund is smaller in terms of market capitalization. Without controlling for this potential discrepancy, we may be attributing “alpha” to what is actually the “size premium” within that region of the world. Remember, over the last 88 years, smaller companies have outperformed larger companies.

A better way of controlling for these possible discrepancies is to run multiple regressions where we account for the known dimensions of expected return in the US (market, size, relative price, etc.). For example, if we were to look at all of the US based strategies from Invesco who have been around for at least the last 10 years, we could run multiple regressions to see what their alpha looks like. The chart below displays the average alpha and standard deviation of that alpha for the last 10 years ending 12/31/2015.

As you can see, not a single fund produced an alpha that was statistically significant at the 95% confidence level (green shaded area). This is what we would expect in a well functioning capital market.

Unfortunately, this type of statistical analysis is also limited. Our model is only as good as the data that we use as the independent variables in the regression. For example, if we were to run a regression for the Invesco New Asia Fund, we would need a market, size, and relative-price factors for International stocks mainly focused in Asia. No such database currently exists at this point. The alternative would be to try to explain its performance using stock market information from the US (more robust data set), which doesn’t make a whole lot of sense since it is two completely different samples.

So what is the bottom line? In general, Invesco has not demonstrated that their process of hiring the best analysts and managers and implementing their investment strategies is superior to anyone else. To say they apply a unique process to just 3 of their investment strategies seems very unlikely. The majority of funds offered by Invesco have failed to outperform their benchmark since inception. Of those that did by a statistically significant amount, it is similar to what we would expect by random chance alone. Among international and foreign-based investment strategies, bad benchmarking is rampant since there are not customized indexes for every type of investment strategy that exists. The existence of alpha may be the false attribution to a known factor like we displayed in the Asia Pacific Fund. In a global context, because we see a very similar trend across many major fund management complexes, general intuition would indicate that Invesco falls victim to a similar fate based on market efficiency, cost, and competition.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold, and rebalance a globally diversified portfolio of index funds.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.
The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.

We have taken a deeper look at the performance of several other mutual fund companies and have come to one universal conclusion: they have failed to deliver on the value proposition they profess, which is to reliably outperform a risk comparable benchmark. You can review by clicking any of the links below: