Citing a strengthening labor market and soft business investment, Fed leaves rates unchanged
As expected, the Federal Reserve left policy unchanged at its July meeting and laid the groundwork for a future rate hike – noting a stronger labor market and moderate growth in economic activity.
FOMC: Near-term risks to economy have diminished
Following recent market turmoil, we answer investor questions about convertibles
In the market turmoil that followed the UK’s recent vote to exit the European Union (EU), the Invesco Convertible Securities team received a number of investor inquiries regarding the convertible asset class in general and our fund in particular. Investors have been interested to know about exposures to foreign markets and economically sensitive sectors, volatility and liquidity. Below we address the most frequently asked questions we’ve received about convertible securities, or “converts.”
How much international exposure does the US convertible market have?Continue
Skip the alphabet soup and discover the real meaning of these investment terms
A former colleague of mine from New York City had a beautiful, multi-syllabic, Italian last name that began with “A” and ended with the “Z” sound. Since it was hard to pronounce for a lot of people, he simply told everyone to call him “A to Z.” This tactic worked, because everyone remembered him and didn’t have to worry about mispronouncing his name.
I remembered him when I was drafting this blog, thinking about all the terms and jargon that our industry uses in describing investments and investment strategies. We literally have terminology from A to Z, and while all of it is useful for the right audience, so much of it can be terribly confusing without the proper context.
So are there terms we can lose — or at least define more clearly? I believe so. Below, I’ve dipped into this alphabet soup to highlight terms that can cause confusion and offer up simpler suggestions to help get the point across.Continue
Reviewing macro trends that influenced factor returns
The power of factor investing was displayed brightly during the second quarter, as 18 single-factor and multi-factor indexes in the chart below outperformed the market-cap-weighted S&P 500 Index. Dividend and low volatility strategies were among the top performers, but mid-cap value and momentum posted a solid showing. In contrast, buyback, large-cap value and large-cap growth lagged.
The spread between the best-performing factor index, the NASDAQ US Dividend Achievers 50 Index, and the worst-performing factor index, the NASDAQ US Buyback Achievers Index, was 9.70% in the second quarter. This return dispersion among factors was much less than the dispersion seen over the first half of 2016, which was more than twice as large at 24.56%. The NASDAQ US Dividend Achievers 50 Index was not only the best performer in the second quarter, but also for the first half of 2016 (+18.83%). The Dorsey Wright Small Cap Technical Leaders Index was the biggest laggard (-5.73%) in the first half of 2016.1
Select factor performance sorted by Q2 returnsContinue
As OPEC fails to align on production policy, the US is poised to take a larger role in dictating global energy supply
After five decades of influencing global oil prices, the Organization of the Petroleum Exporting Countries (OPEC) has lost its ability to act in a coordinated manner, in my view. This sets the stage for the US to become the world’s “swing producer” — the region that can most easily loosen or tighten its flow of oil in response to changing global demand.
Let’s take a look at how the industry got here, and what I expect to see going forward.Continue
Risk to inflation mandate may cause a shift in Fed strategy
The fallout from the Brexit vote may cause the US Federal Reserve (Fed) to focus greater attention on risks to its inflation mandate. While the Fed seems comfortable with the gradual convergence of inflation toward its 2% target, the Brexit vote increases the risk of falling short. The aftermath of Brexit could dampen inflation through two channels: 1) a resurgence in US dollar strength that curbs inflation pressures through the import channel, and 2) increased financial market volatility that leads to tighter financial conditions and reduced lending.
Even before the UK referendum, several indicators had thrown the Fed’s inflation target into question.Continue
Utilities illustrate the relationship between interest rates and equity valuations
The past few months have been good for utility stocks. Year-to-date through June 27, the S&P 500 Utilities Sector Index has risen nearly 20%, compared with a loss of 1.06% for the S&P 500 Index.1 Because utility companies are regulated and provide essential services, utilities are often considered defensive holdings and are staples of low volatility portfolios. Utility stocks are also known for potentially paying regular dividends. That can make them appealing to investors looking for yield opportunities in a low interest rate environment.
Given their strong performance, some investors have questioned whether utility shares might be overvalued and whether this might have repercussions for factor-based low volatility performance. Indeed, the trailing price-to-earnings (P/E) ratio for the S&P 500 Utilities Sector Index has risen from 15.5 in September 2015 to a recent high of 18.5.1
Interest rates can affect equity valuations
But investors considering valuations without regard to interest rates are making a mistake, in my view. The decline in yields cannot be ignored for two reasons:Continue
How a two- to three-year outlook can help reveal attractive investment opportunities
The Invesco Perpetual Multi Asset team believes that identifying investment opportunities requires a comprehensive view of economic and market dynamics — one that accounts for short-term, cyclical drivers but also looks beyond to incorporate longer-term, structural trends. We believe a two- to three-year time frame can help account for both types of trends to reveal attractive investment opportunities. In this blog, we explain why.Continue
The managers of Invesco International Companies Fund vote ‘yes’
In the lead-up to the referendum on the UK’s continued membership in the European Union (EU), certain British bookmakers were offering strong odds on bets the UK would opt to exit, anticipating an approximate 25% probability of a leave win.1 At the same time, both sides were running neck-and-neck in the polls,1 rationally implying around a 50% chance of a leave vote result. This is an obvious example of a mispriced bet.
Investing is a much different endeavor,Continue
Global Industry Classification Standard (GICS) to add real estate as 11th global sector
2016 figures to be a momentous year for the real estate investment trust (REIT) industry, which will soon become a class unto itself. Literally. But first, a little background.
In 1999, MSCI Inc. and S&P Dow Jones Indices established the Global Industry Classification Standard (GICS) — a hierarchical industry classification system consisting of 10 sectors, 67 industries and 156 sub-industries. Currently, REITs are classified as a sub-industry of the real estate industry, which, in turn, falls under the financials sector.
That is about to change.Continue