Stock Analysis Pic C

Invesco: A Deeper Look At the Performance

Stock Analysis Pic C

To many investors, Atlanta-based Invesco Ltd. is an investment management conglomerate with a history of acquiring large multi-asset fund families across the globe. These days, it's involved in everything from mutual funds and exchange-traded funds to private placements, separately managed accounts, variable insurance funds and a myriad of alternative investment strategies. 

Indeed, this firm's history traces its roots to banking. It has also been active in growing through acquistions of other major fund competitors such as the former AIM Investments (1997) and one of the largest players in exchange-traded funds, PowerShares (2006). In May of 2019, it completed the acquisition of OppenheimerFunds, which added $224.4 billion in assets under management.

With nearly $1.6 trillion in assets under management1 and 8,000-plus employees in 25 countries, Morningstar ranks Invesco as the seventh-largest U.S. retail asset manager. The independent funds research firm estimates that Invesco is the 13th biggest global asset manager. The company's stock trades on the New York Stock Exchange (TICKER: IVZ).

Still, in a consolidating asset-management industry, active competitors — including hedge funds and private equity managers —  have reportedly been circling. A much publicized story in recent years involved Nelson Peltz's Trian Partners taking a 9.9% stake in the company in 2020. At the same time, Trian Partners bought a similar-sized chunk of Janus Henderson Group, an Invesco rival.

The move raised eyebrows on Wall Street since it came on the heels of the Peltz-led hedge fund becoming a major Legg Mason shareholder. After pushing for cost-cutting measures and a merger, Legg Mason in 2020 agreed to be acquired by another big rival, Franklin Templeton (NYSE: BEN).

Questions about Trian Partners' designs for Invesco seemed to ebb in early 2022 after Peltz announced he was leaving the fund manufacturer's board. Even so, speculation about Invesco's M&A future lingers. Trian Partners has retained its Invesco shares. Also worth noting: Invesco in recent years has been linked to potential merger partners such as State Street Corp. and JP Morgan, among others.

In a recent analysis of Invesco by Morningstar, strategist Greggory Warren warned that "the company has been far more acquisitive in the past couple of years than in the past, increasing its exposure to the risks associated with mergers and acquisitions, including overpaying for deals, loss of (or overestimation of) synergy opportunities, and insufficient operational diligence during acquisition integrations." 2

He also suggested that Invesco's current management was likely to remain open to joining forces or becoming a buyout target of another large asset-manager. At the same time, the independent analyst pointed out they weren't alone in struggling to increase assets and stem investment outflows. Warren observed:

"A confluence of several issues — poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel —has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management."

Along with such ongoing M&A drama and corporate headwinds, Invesco's rather large family of funds includes "too many that are only decent or are unappealing," according to Morningstar's so-called "Parent" rating of the fund complex as an investment manager. The analysis also highlighted a 2020 rebalancing "mishap" in one of its U.S. index funds that was "avoidable" and wound up costing Invesco "money and diverted attention." 3

As a result, in this installment of IFA's ongoing Deeper Look series we're putting under our microscope the investment strategies run by Invesco's mutual fund managers. Along with independent analysis by leading academics, our own research leads IFA's investment committee to an overarching conclusion about stock and bond jockeys: On the whole, active fund managers have failed to deliver on the value proposition they profess, which is to reliably outperform a risk-comparable benchmark.

Controlling for Survivorship Bias

It's important for investors to understand the idea of survivorship bias. While there are 107 active equity mutual funds with five or more years of performance-related data currently offered by Invesco, it doesn't necessarily mean these are the only strategies this company has ever managed. In fact, there are 180 mutual funds with five-plus years of data that no longer exist. This can be for a variety of reasons including poor performance or the fact that they were merged with another fund. We will show what their aggregate performance looks like shortly.

Fees & Expenses

Let's first examine the costs associated with Invesco's surviving 107 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 simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, sales loads — front-end (A), back-end (B) and level (C) — as well as 12b-1 marketing 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 expenses associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades executed by portfolio managers.

We can estimate the costs 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 one year. This is considered an active approach, and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities, such as short- and long-term capital gains distributions, than those incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 107 surviving active funds offered by Invesco that have at least five years of complete 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 in-sample test; the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Max Front Load Global Broad Category Group
Invesco Active Allocation Y OAAYX 16.00 0.86     Allocation
Invesco Advantage International R6 ABRYX 16.00 1.12     Allocation
Invesco American Franchise Y ACEIX 127.00 0.78 0.25 5.50 Allocation
Invesco American Value A QVGIX 51.00 1.32 0.25 5.50 Allocation
Invesco AMT-Free Municipal A ILAAX 16.00 0.51     Allocation
Invesco Balanced-Risk Allocation Y PIYFX 53.00 0.61     Allocation
Invesco Balanced-Risk Commodity Strat Y OYCIX 27.00 0.66     Allocation
Invesco California Municipal A AADIX 19.00 0.70     Allocation
Invesco Capital Appreciation A OYAIX 17 0.75     Allocation
Invesco Charter A CMAIX 28 0.72     Allocation
Invesco Comstock A OYMIX 32 0.73     Allocation
Invesco Comstock Select A QVOPX 74.00 1.38 0.25 5.50 Alternative
Invesco Conservative Income Instl GLTYX 74.00 1.19     Alternative
Invesco Convertible Securities Y GMSHX 86.00 1.22     Alternative
Invesco Core Bond A BRCYX 14.00 1.15     Commodities
Invesco Core Plus Bond Y CNSDX 61.00 0.67     Convertibles
Invesco Corporate Bond A QMGIX 141.00 0.64     Equity
Invesco Developing Markets A VAFIX 57.00 0.72     Equity
Invesco Discovery A MSAVX 58.00 1.18 0.25 5.50 Equity
Invesco Discovery Mid Cap Growth Y OPTFX 78.00 0.95 0.22 5.50 Equity
Invesco Diversified Dividend A CHTRX 47.00 1.03 0.25 5.50 Equity
Invesco Dividend Income Investor ACSTX 46.00 0.82 0.25 5.50 Equity
Invesco Emerging Markets Local Debt Y CGRWX 19.00 0.96 0.24 5.50 Equity
Invesco Emerging Markets Select Equity Y ODMAX 38.00 1.20 0.25 5.50 Equity
Invesco Emerging Mkts Innovators R6 OPOCX 61.00 1.01 0.23 5.50 Equity
Invesco Energy Inv OEGYX 92.00 0.78     Equity
Invesco Environmental Focus Muni A LCEAX 34.00 0.81 0.25 5.50 Equity
Invesco Equity and Income A FSTUX 4.00 0.99 0.25   Equity
Invesco Eqv Asia Pacific Equity A IEMYX 47.00 1.08     Equity
Invesco Eqv Emerging Markets All Cap A EMVIX 50.00 1.25     Equity
Invesco Eqv European Equity A FSTEX 68.00 1.57 0.25   Equity
Invesco EQV International Equity A ASIAX 15.00 1.39 0.25 5.50 Equity
Invesco European Small Company A GTDDX 19.00 1.32 0.25 5.50 Equity
Invesco Exchange AEDAX 18.00 1.35 0.25 5.50 Equity
Invesco Floating Rate ESG A AIIEX 25.00 1.32 0.25 5.50 Equity
Invesco Fundamental Alternatives A ESMAX 10.00 1.54 0.25 5.50 Equity
Invesco Global A ACEHX 0.00 0.54     Equity
Invesco Global Allocation A OPPAX 7.00 1.03 0.23 5.50 Equity
Invesco Global Core Equity A AWSAX 23.00 1.22 0.25 5.50 Equity
Invesco Global Focus Y GLVYX 24.00 0.94     Equity
Invesco Global Growth A AGGAX 51.00 1.23 0.25 5.50 Equity
Invesco Global Infrastructure Y GIZYX 103.00 1.02     Equity
Invesco Global Opportunities A OPGIX 7.00 1.04 0.24 5.50 Equity
Invesco Global Real Estate Income A ASRAX 41.00 1.19 0.24 5.50 Equity
Invesco Global Real Estate R5 IGREX 160.00 0.94     Equity
Invesco Global Strategic Income A OPGSX 43.00 1.05 0.24 5.50 Equity
Invesco Global Targeted Returns Y IACFX 101.00 1.15     Equity
Invesco Gold & Special Minerals A ACGIX 33.00 0.80 0.25 5.50 Equity
Invesco Greater China R5 GGHCX 78.00 1.02 0.25 5.50 Equity
Invesco Growth and Income A GTNDX 115.00 1.23 0.25 5.50 Equity
Invesco Health Care A SCIUX 143.00 0.73     Equity
Invesco High Yield A IIBCX 86.00 1.12 0.25   Equity
Invesco High Yield Bond Factor R6 OIDYX 20.00 1.00     Equity
Invesco High Yield Municipal A QIVAX 98.00 1.24 0.25 5.50 Equity
Invesco Income A IZIYX 45.00 0.96     Equity
Invesco Income Advantage Intl A IEGAX 6.00 1.61 0.25 5.50 Equity
Invesco Income Advantage U.S. Fund R5 OSMAX 24.00 1.31 0.24 5.50 Equity
Invesco Income Allocation R5 MSIGX 47.00 0.82 0.23 5.50 Equity
Invesco Intermediate Bond Factor Y OMSYX 35.00 0.83     Equity
Invesco Intermediate Term Muni Inc A OPMYX 65.00 0.87     Equity
Invesco International Bond A OSSIX 58.00 0.77     Equity
Invesco International Core Equity Invstr OIGAX 18.00 1.10 0.25 5.50 Equity
Invesco International Diversified Y IARCX 156.00 2.03 1.00   Equity
Invesco International Equity A OARDX 30.00 1.00 0.25 5.50 Equity
Invesco International Select Equity Y SMEAX 22 1.31 0.25 5.5 Equity
Invesco International Small Company A GTSAX 35 1.15 0.25 5.5 Equity
Invesco International Small-Mid Com A VSCAX 71 1.12 0.25 5.5 Equity
Invesco Limited Term CA Municipal A MLPNX 42 2.73     Equity
Invesco Limited Term Municipal Income A2 MLPOX 31 2.24     Equity
Invesco Macro Allocation Strategy Y MLPZX 22 1.19     Equity
Invesco Main Street A MLPTX 18 0.94     Equity
Invesco Main Street All Cap Y SMMIX 47 0.84 0.1   Equity
Invesco Main Street Mid Cap Y FTCHX 59 1 0.15   Equity
Invesco Main Street Small Cap R6 VVOAX 62 1.22 0.25 5.5 Equity
Invesco Multi-Asset Income Y OPTAX 20.00 0.84 0.24 4.25 Fixed Income
Invesco Municipal Income A OPCAX 28.00 0.86 0.25 4.25 Fixed Income
Invesco New Jersey Municipal A ICIFX 68.00 0.27     Fixed Income
Invesco Oppenheimer International Gr A OPIGX 526.00 0.71 0.25 4.25 Fixed Income
Invesco Pennsylvania Municipal A CPBYX 366.00 0.51     Fixed Income
Invesco Quality Income A ACCBX 182.00 0.74 0.25 4.25 Fixed Income
Invesco Real Estate C OEMYX 107.00 1.11     Fixed Income
Invesco Rising Dividends A OPAMX 63.00 0.75 0.25 4.25 Fixed Income
Invesco Rochester AMT-Free NY Mncpl A AFRAX 76.00 1.06 0.25 2.50 Fixed Income
Invesco Rochester Limited Tm NY Mncpl A OPSIX 241.00 1.01 0.24 4.25 Fixed Income
Invesco Rochester Municipal Opps A AMHYX 101.00 1.08 0.25 4.25 Fixed Income
Invesco Rochester New York Municipals A OGYIX 161.00 0.39     Fixed Income
Invesco Select Risk: Conservative Inv Y ACTHX 26.00 1.07 0.25 4.25 Fixed Income
Invesco Select Risk: Growth Investor R5 AGOVX 276.00 0.98 0.25 4.25 Fixed Income
Invesco Select Risk: High Growth Inv Y OFIYX 292.00 0.27     Fixed Income
Invesco Select Risk: Mod Cnsv Inv R5 VKLMX 26.00 0.82 0.25 2.50 Fixed Income
Invesco Select Risk: Moderate Inv Y OIBAX 197.00 1.02 0.25 4.25 Fixed Income
Invesco Senior Floating Rate A OLCAX 27.00 0.85 0.25 2.50 Fixed Income
Invesco Short Duration High Yld Muni Y AITFX 19.00 0.41   1.00 Fixed Income
Invesco Short Duration Inflation Prot R5 VKMMX 23.00 0.95 0.25 4.25 Fixed Income
Invesco Short Term Bond C ONJAX 27.00 1.12 0.25 4.25 Fixed Income
Invesco Short Term Municipal Y OPATX 14.00 0.91 0.24 4.25 Fixed Income
Invesco Small Cap Equity A VKMGX 401.00 0.85 0.24 4.25 Fixed Income
Invesco Small Cap Growth A OPNYX 15.00 0.97 0.24 4.25 Fixed Income
Invesco Small Cap Value A LTNYX 17.00 0.87 0.24 2.50 Fixed Income
Invesco SteelPath MLP Alpha Plus Y ORNAX 28.00 0.95 0.25 4.25 Fixed Income
Invesco SteelPath MLP Alpha Y RMUNX 24.00 0.92 0.24 4.25 Fixed Income
Invesco SteelPath MLP Income Y OOSAX 86 1.08 0.25 3.25 Fixed Income
Invesco SteelPath MLP Select 40 Y ISHYX 19 0.61     Fixed Income
Invesco Summit P ALMIX 49 0.3     Fixed Income
Invesco Technology Investor STBCX 245 0.99 0.65   Fixed Income
Invesco Value Opportunities A ORSYX 24 0.53     Fixed Income
Invesco World Bond Factor R5 AUBIX 165 0.3     Fixed Income

On average, an investor who utilized a surviving active equity mutual fund strategy from Invesco experienced an expense ratio of 1.13% per year. Similarly, an investor who utilized a bond strategy from Invesco on average paid an expense ratio of 0.79% a year.

These expenses can have a substantial impact on an investor's overall accumulated wealth if they are not backed by superior performance. The average turnover ratios for equity and bond strategies from Invesco were 50.91% and 119.36%, respectively. This implies an average holding period of 10.05 to 23.57 months.

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. Again, turnover is a cost that is not itemized to the investor but is definitely embedded in the overall performance.

Performance Analysis

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Invesco's implementation of active management. We compare each of its 287 strategies with five or more years against its Morningstar-assigned benchmark to see just how well each has delivered on its perceived value proposition. We also use the oldest share class of each fund, which sometimes are older than its assigned benchmark. In those cases, comparisons can only be made for the length of time that the benchmark has data available. 

We have included alpha charts for each of their current strategies at the bottom of this article. Here is what we found:

  • 80.84% (232 of 287 funds) have underperformed (or didn't survive) their respective benchmarks since inception.

  • 19.16% (55 of 287 funds) have outperformed (and survived) their respective benchmarks since inception, having delivered a positive alpha.

Here's the real kicker, however:

  • 1.74% (5 of 287 funds) wound up outperforming their respective benchmarks consistently enough since inception to provide 97.5% confidence that such outperformance could persist (as opposed to being based simply on random outcomes).

So, relatively few — less than 2% — of Invesco's active mutual fund managers were able to deliver statistically significant benchmark outperformance. The inclusion of the statistical significance of alpha is key to this exercise, as it indicates which outcomes are due to a skill that is likely to repeat and those that are more likely due to a random outcome.

As a result, this study shows that a majority of funds offered by Invesco have not outperformed Morningstar-assigned benchmarks.

Regression Analysis

How we define or choose a benchmark is extremely important. If we relied solely on commercial indexes assigned by Morningstar, then we may form a false conclusion that Invesco has the "secret sauce" as active managers.

Since 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.

A better way of controlling these possible discrepancies is to run multiple regressions where we account for the known factors (betas) of expected return in the U.S. (i.e., market, size, relative price, etc.).

For example, if we were to look at all of the U.S.-based equity strategies offered as a part of the Invesco mutual funds family that've been around for at least the past 10 years, we could run multiple regressions to see what each fund's alpha looks like — once we control for the multiple betas that are being systematically priced into the overall market.

Besides using common mathematical concepts of regression analysis, our methodology for this study incorporates a standard point of demarcation for determining the number of years reviewed. Given that many active families have few survivors with records spanning a decade or more, we use this number (10) as a basic threshold for comparing active managers as part of our ongoing Deeper Look series. The chart below displays the average alpha and standard deviation of that alpha for the past 10 years through 2021. Screening criteria include funds with holdings of 90% or greater in U.S. equities and uses the oldest available share classes. 

As shown above, two of the mutual funds studied had positive excess returns over the stated benchmarks. At the same time, no equity funds produced a statistically significant level of alpha, based on a t-stat of 2.0 or greater. Why is this important? Given the lower costs associated with index funds, we'd have greater confidence of experiencing a more desirable result using a passively managed portfolio of funds compared to one constructed around more expensive actively managed funds. (A review of how to calculate a fund's t-stat can be found at the end — right after the presentations of the individual alpha charts for each Invesco fund included in this study.)

Conclusion

Like many of the other largest financial institutions, a deep analysis into the performance of Invesco has yielded a not so surprising result: active management is likely to fail many investors. We believe this is due to market efficiency, costs and increased competition in the financial services sector.

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.

Below are the individual alpha charts for the existing Invesco actively managed mutual funds that have five years or more of a track record.


 


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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.




Footnotes:

1.) Invesco, news release "Invesco Ltd. Announces March 31, 2022 Assets Under Management," April 11, 2022. 

2.) Morningstar, "A Return of Positive Flows Should Help Buoy Invesco's AUM During Periods of Market Weakness," Feb. 23, 2022. 

3.) Morningstar, "Invesco Parent Rating," Gregg Wolper, Dec. 22, 2020. 


This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.