Invesco Perpetual's Millar: Why we unwound EM equity trade

Former GARS managers detail performance in 2015

Natalie Kenway
clock • 2 min read

Invesco Perpetual's multi-asset team quickly reversed a "too early" move into an emerging markets equity trade last year on the group's £4.6bn Global Targeted Returns fund, and instead implemented an EM currency idea to retain exposure to the region.

David Millar (pictured), manager of the fund - which was the best-selling retail fund last year with inflows of around £4bn - alongside Dave Jubb and Richard Batty, said an EM equity position was implemented in the second quarter of 2015.

"We looked at EM equities as the long-term valuation case appeared attractive, especially relative to US equities. We implemented a small EM vs US equity idea but reversed it two months later as commodity prices and the US dollar moved against this idea," Millar said.

Invesco Perpetual reduces fund exposure limit on Global Targeted Returns

However, the team turned their attention to EM currencies, and bought the Chilean peso and shorted the Australian dollar in the fourth quarter.

"We wanted to find a way to dip a toe into EMs so we chose the more robust end of the economic spectrum," Millar said.

"The Chilean peso provides an attractive opportunity relative to the Australian dollar. The peso is a measurably cheap currency and macroeconomic fundamentals are improving in Chile, while Australia is still struggling following the end of the commodities super-cycle."

The fund, which launched in September 2013,  was up 0.9% in 2015, with positive performance in the first, third and fourth quarters.

However, it is down 2.5% for the year to 20 January, according to FE Trustnet, compared to a positive 0.7% return for the IA Targeted Absolute Return sector.

Millar said volatility trades, which were down in the first half of last year, provided the fund with "defensive characteristics" in the second half.

He added: "One of our best ideas was in US equities where we were long consumer staples and short consumer discretionary. It worked really well in the difficult periods as an offset to struggling equity markets."

Millar said US dollar exposure was also positive for the fund, with trades against the euro as well as the Canadian dollar on the back of the negative oil story and struggling Canadian economy.

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