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Invesco Perpetual Distribution Fund

July 2014 (Content as at 30 June 2014)

Objective

The Invesco Perpetual Distribution Fund aims to achieve a combination of income and capital growth over the medium to long term. The Fund seeks to achieve its objective by investing primarily in corporate and government debt securities globally (which may be unrated or sub-investment grade) and equities. The Fund may also invest in cash, cash equivalents, money market instruments, collective investment schemes, and other transferable securities. Financial derivative instruments can be used for investment purposes and for efficient portfolio management. They may include derivatives on currencies, interest rates, credit and equities and can be used to achieve both long and short positions.

Guide

Dilution adjustment explained

13 November 2013 |

What we mean by a dilution adjustment and what it means for you.

Find out more about dilution adjustments

Market commentary

The corporate bond market saw mixed returns in June while returns for UK equities were negative. Data on the performance of the UK economy has remained strong, with business sentiment, employment growth and rising retail sales all indicating that the recovery is continuing. Inflation is relatively low, with the headline annual rate falling to 1.5% in May. However, Bank of England rhetoric has been more hawkish in recent weeks, raising the possibility that interest rates will rise sooner than previously thought. This has put upward pressure on Gilt yields and, by extension, sterling corporate bond yields. According to data from Merrill Lynch, sterling investment grade corporate bonds had a total return for the month of -0.2%. This compares to -0.6% for Gilts. Within investment grade, there was little variance by sector or by credit quality category. The FTSE All Stocks index of UK equities returned -1.3% (£, total return). Oil stocks performed well, echoing the recent rise in the oil price.

Fund strategy

Corporate bond yields remain low by historical standards and we believe many areas of the market offer limited value. Our strategy is defensive and we have significant exposure to cash and other highly liquid assets, along with a relatively high allocation to equities. We think yields in parts of the financial bond sector are relatively attractive. In our view, ongoing structural reform is supporting subordinated bank debt. We also see some opportunities in junior debt across other sectors. We believe core government bonds, such as Gilts, offer limited value. In equity markets, we are seeking companies with strong fundamentals and with sensible management whose interests are aligned with shareholders. We see more risk in the UK stock market as it has risen. However, there are stocks that we believe look attractively valued, particularly for income generation.

Key facts
Product type ICVC
Launch date 26 January 2004
Fund size £3,022.53m
Distribution yield* 4.44%
Redemption yield* 2.48%
Underlying yield* 2.9%
Running yield* 4.39%
IMA sector IMA Mixed Investment 20-60% Share Sector
Available in an ISA? Yes

Fund manager

Paul Causer

Title: Co-Head of Fixed Interest

Team: Invesco Perpetual - Fixed Interest

Ciaran Mallon

Title: Fund Manager

Team: Invesco Perpetual - UK Equities

Paul Read

Title: Co-Head of Fixed Interest

Team: Invesco Perpetual - Fixed Interest

Fund details
Fund currency GBP
Trading frequency Daily
Accounting period ends 30 April
31 October
Share types
SEDOL ISIN
Accumulation 3394722 GB0033947226
Accumulation (Gross) 3394755 GB0033947556
Income 3394733 GB0033947333
Income (Gross) 3394766 GB0033947663
Accumulation (No Trail) B1W7J08 GB00B1W7J089
Income (No Trail) B1W7J19 GB00B1W7J196
Accumulation (No Trail Gross) B8N4714 GB00B8N47143
Income (No Trail Gross) B8N4725 GB00B8N47259
Y (Acc) BJ04FH6 GB00BJ04FH62
Y (Acc) Gross BJ04FK9 GB00BJ04FK91
Y (Inc) BJ04FJ8 GB00BJ04FJ86
Y (Inc) Gross BJ04FL0 GB00BJ04FL09
Z (Acc) B8N4532 GB00B8N45329
Z (Acc) Gross B8N4554 GB00B8N45543
Z (Inc) B8N4543 GB00B8N45436
Z (Inc) Gross B8N4565 GB00B8N45659
Investment levels
Minimum lump sum £500
Minimum additional lump sum £100
Minimum monthly amount £20

One-off charges taken before you invest

Entry charge

The entry charge for the fund is up to 5%. This is the maximum that might be taken out of your money before it is invested. For example, if you invest £1,000, an entry charge of 5% means £950 of your money will be used to buy shares in the fund.

The entry charge covers the costs of setting up your investment.

If you invest through a third party (such as a financial adviser), but do not receive financial advice on your investment, this charge may include payments to that third party. For more details see "What share classes are available for your ICVC funds?".

Exit charge

There is no exit charge for the fund.

Charges taken from the fund over a year

Ongoing charge

The ongoing charge figure is based on a fixed, all-inclusive fee and excludes portfolio transaction costs. The ongoing charge for each share class can be found in the relevant Key Investor Information Document available under 'Related features and literature'. Investors will be provided with advance notice if any increases to this figure occur.

The ongoing charge covers all aspects of operating the fund during the year, including fees paid for investment management, administration and the independent oversight functions.

If you invest through a third party (such as a financial adviser), but do not receive financial advice on your investment, this charge may include payments to that third party. Once invested, your contract note or acknowledgement letter will show the amount of any payment in cash terms. For more details see "What share classes are available for your ICVC funds?".

Charges taken from the fund under specific conditions

Performance fee

No performance fee is charged.

Portfolio transaction costs1

On average, over the last three financial years, the fund incurred broker commissions of 0.02% and transfer taxes of 0.07%, as a necessary part of buying and selling the fund's underlying investments in order to achieve the investment objective. The commission and transfer taxes only relate to the equity (shares) portion of the fund. A proportion of these costs is recovered directly from investors joining and leaving the fund.

The bond portion of the fund invests in fixed interest securities which have no separately identifiable transaction costs; these costs form part of the dealing spread between the buying and selling prices of the underlying investments.

When the fund buys or sells equities or bonds, broker commissions and transfer taxes are paid by the fund on each transaction. In addition, there is a dealing spread between the buying and selling prices of the underlying investments. Dealing spreads vary considerably depending on the transaction value and market sentiment. The estimated average dealing spread for the fund is 0.80% of the transaction value.

Comparing portfolio transaction costs for a range of funds may give a false impression of the relative costs of investing in them, for the following reasons:

  • Transaction costs do not necessarily reduce returns. The net impact of dealing is the combination of the effectiveness of the manager's investment decisions in improving returns and the associate costs of investment
  • Historic transaction costs are not an effective indicator of the future impact on performance
  • Transaction costs for buying and selling investments due to other investors joining or leaving the fund may be recovered from those investors. For further information see Pricing policy note below
  • Transaction costs vary from country to country
  • Transaction costs vary depending on the types of investment in which a fund invests
  • As the manager's investment decisions are not predictable, transaction costs are also not predictable

Stamp duty reserve tax (SDRT)1

SDRT is payable by funds which invest wholly or in part in UK equities.

During the last financial year the fund incurred stamp duty reserve tax of 0.03% as a result of investors joining and leaving the fund.

Schedule 19 SDRT was abolished on 30 March 2014 with the final payment being made in April 2014. We will continue to reflect SDRT as a charge to the fund (if applicable) where this payment occurs within the last financial year ending after 31 March 2014. Thereafter no charge will be shown.

Pricing policy note1

We operate a single pricing methodology for this fund and reserve the right to adjust the fund's price to protect your investment from the costs of buying and selling investments that result from other investors joining or leaving the fund. The amount of any such adjustment is calculated by reference to the estimated costs of dealing in the underlying investments, including any dealing spreads, broker commissions and transfer taxes.

Typical adjustments to the fund's price are to increase it by 0.47% for net inflows or decrease it by 0.45% for net outflows.

We usually adjust the price to the maximum extent possible when the value of net contributions or withdrawals is significant, which helps to protect your investment from the costs of the resultant transactions.

1The fund's financial year end is 30 April 2014. Figures in these sections are as at 30 April 2014.

Top 10 bond issuers (%)

Fund
Bank of Ireland 1.31
UPC 1.14
Citigroup 1.02
Abbey 1.00
Nationwide 0.91
Ziggo 0.87
Lloyds Banking Group 6.49
RBS 3.14
Barclays Bank 2.24
AIB 1.38

Top 10 equity holdings (%)

Fund
AstraZeneca 3.54
GlaxoSmithKline 3.49
British American Tobacco 2.35
BT 2.04
Reynolds American 1.99
Roche 1.91
BG 1.76
Vodafone 1.71
Imperial Tobacco 1.7
Reckitt Benckiser 1.48

 

Breakdown by asset type

Chart | Table

Asset type Fund
Fixed Interest 63.15
Equities 35.61
Cash 1.25

Breakdown by currency exposure

Chart | Table

Currency Fund
Swiss Franc 0.49
Euro 1.66
US Dollar 2.12
UK Sterling 95.73

Breakdown by credit rating

Chart | Table

Credit rating Fund
BB 22.68
BBB 16.43
A 3.30
AA 1.54
AAA 0.37
Cash 1.25
Equities 35.61
Credit Default Swaps -0.22
Future -0.11
Not-Rated (Investment Grade) 1.24
Not-Rated (High Yield) 3.28
C 1.75
CC 0.04
CCC 0.87
B 11.99

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns.

The securities that the fund invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities. These risks increase where the fund invests in high yield bonds and where we use derivatives.

The fund has the ability to make use of financial derivatives (complex instruments) which may result in the fund being leveraged and can result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment.The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss.

Important information

Yield and performance figures are based on the accumulation share class.

All fund portfolio figures are as at date shown (source: Invesco Perpetual).

Performance figures are shown in sterling on a mid-to-mid basis, inclusive of net reinvested income and net of the ongoing charge and portfolio transaction costs to date shown. The figures do not reflect the entry charge paid by individual investors (source: Lipper).

The yields shown are expressed as % per annum of current NAV of the fund. They are estimates for the next 12 months, assuming that the fund’s portfolio remains unchanged and there are no defaults or deferrals of coupon payments or capital repayments. They are not guaranteed. They do not reflect the entry charge of the fund. Investors may be subject to tax on distributions. Cash income is estimated coupons from bonds and, where applicable, estimated dividends from equities. The running yield estimates expected cash income into the fund from coupons of current bond holdings and, where applicable, dividends from current equity holdings. The running yield for this fund is gross of the ongoing charge, which is charged to capital. The redemption yield estimates the annualised total return: in addition to expected cash income, it includes the amortised annual value of unrealised capital gains/losses of current bond holdings, calculated with reference to their current market price and expected redemption value. The redemption yield is net of the ongoing charge. The distribution yield estimates the cash distribution to the shareholders: in addition to expected cash income, it includes the amortised annual value of unrealised capital gains/losses of current bond holdings, calculated with reference to their historic purchase price and expected redemption value (known as ‘effective yield from purchase price’ method). The distribution yield for this fund is gross of the ongoing charge, which is charged to capital. The underlying yield is calculated in the same way as the distribution yield, but is always net of the ongoing charge. The underlying yield for this fund is, therefore, lower than the distribution yield by the amount of the ongoing charge. Where, in the Manager’s judgement, there is significant uncertainty that a bond holding will be redeemed at par, the amortised capital component for that holding is retained in the fund’s capital and not distributed. This has the effect of reducing the estimated redemption, distribution and underlying yields and the actual distribution rate.

Where Invesco Perpetual has expressed views and opinions, these may change. Where securities are mentioned they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell.

For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the latest Annual or Interim Short Reports and the latest Prospectus. This information is available using the contact details shown.