Invesco Blog

The European Central Bank (ECB) surprised markets once again on April 21 with the timing of some important announcements and also the scope of its bond purchasing program. While the ECB kept all three of its policy interest rates on hold — as expected — and the size of its asset purchase program unchanged at EUR80 billion a month, ECB President Mario Draghi provided new details in a news conference on the implementation of the bank’s program and on the scope of what assets it can buy. At a high level, Draghi summarized by saying that the ECB’s monetary policies are working, but they need time to be more effective.

The first quarter of 2016 has come to a close, and what a period it was. The past quarter’s returns were a clear testament to the power of factor investing, and provide further evidence that smart beta strategies can add value to a diversified portfolio.

Several highly punitive credit downgrades of higher-quality energy companies surprised the investment grade bond market recently, with some downgrades representing cuts of four to five notches. But Invesco Fixed Income believes there may be a silver lining to these downgrades: Together with low commodity prices, these moves may be driving a positive shift toward more prudent corporate balance sheet management, largely in favor of creditors. While commodity price volatility, an oversupplied oil market and broader macroeconomic uncertainty cause us to be very cautious about investing in energy-related credit, we believe such volatility and change in corporate behavior may create unique opportunities for active investment managers.

It’s an age-old adage: buy low and sell high. This mantra is typically seen as a recipe for success in stock market investing, particularly among value investors. In order to determine whether or not a stock is cheap, many value investors use fundamental ratios, such as price-earnings, price-to-book and price-to-sales. Low multiples are taken as an opportunity to buy, while high multiples are seen as an opportunity to sell. Following this line of reasoning, value investors typically shy away from stocks that appear expensive based on valuation ratios, and are drawn to stocks that appear cheap.

European banks’ contingent convertible (CoCo) junior subordinated Additional Tier 1 securities — the junior subordinated subset of the CoCo family — suffered a significant sell-off in January and February from which they have only partly recovered. However, Invesco Fixed Income believes the investment thesis for this asset class remains intact, especially following the European Central Bank’s (ECB) constructive actions announced on March 10.

There has been fresh speculation that the US Federal Reserve (Fed) might implement a negative interest rate policy (NIRP) in its quest to boost the economy. While negative interest rates are not a new phenomenon, we’ll explain three main reasons why Invesco Fixed Income believes this scenario is highly unlikely in the short to medium term.

New monetary stimulus measures announced today by the European Central Bank (ECB) represent a bold move, in our view, and should be positive for riskier European assets, such as credit assets.

Virtually all Asia Pacific countries and sectors are experiencing negative earnings revisions, with return on capital falling to decade lows, a weak export environment and lackluster domestic economies. In this environment, investors have sought the highest-growth and highest-quality companies irrespective of valuation. Because the Invesco International and Global Growth team is not willing to buy at any price, we have been priced out of many of businesses we believe are attractive. But we see signs that this is starting to turn in certain areas.

As the equity market normalizes, I believe alternative investments can be helpful to investors. That’s because alternatives have a history of outperforming equities during periods of stock market weakness.

The Invesco Global Asset Allocation team doesn’t consider double-digit declines in equity markets to be normal. However, we do see three “typical” characteristics that have returned to the markets over the last few months, characteristics that we believe bode well for a global asset allocation approach.

W-2s are out, marking the heart of the IRA season, when more business is traditionally done than at any other time of year. And where does this occasion find many financial advisors (FAs)? They could be speculating endlessly about what the imminent Department of Labor (DOL) fiduciary rule may mean for IRAs. (Please see my earlier blog post, IRA opportunity knocks, despite DOL fiduciary rule). Truth be told, though, nobody knows or will know until the final version of the rule is released, likely in mid-March. In the interim, however, IRA opportunity is knocking loudly.

The end of 2015 didn’t bring any dramatic changes to European fundamentals. However, there have been some subtle shifts that the Invesco International and Global Growth team is keeping an eye on in 2016. While our strategy did not initiate any new positions in Europe during the fourth quarter, recent volatility has brought some of our “watch list” names closer to the point where we would add them to the portfolio.

As a deep value manager with a long time horizon, I often see opportunities in the midst of gloomy headlines. While crude oil hit a new 12-year low of around $26 a barrel in January, I view this sector as one of my top long-term opportunities.

Volatility in China has been a major driver of global markets, and Chinese foreign exchange policy has been a critical aspect of this volatility. The recent depreciation of China’s currency, the renminbi (RMB), has increased the volatility of currency pairs across Asia and may affect markets across the world.