Invesco adds risk parity in balanced fund

Sep 15, 2013 @ 12:01 am

By Jason Kephart

Invesco Ltd. has opened up a new fund to financial advisers that takes its balanced-risk strategy and adds a tactical flair.

The Invesco Global Markets Strategy Fund (GMSDX) was launched in September 2012 but was made available to nonaccredited investors only this month. The fund is managed by the same team as the $12.7 billion Invesco Balanced-Risk Allocation Fund (ABRZX).

The fund is a flavor of risk parity, an increasingly popular alternative to the classic 60/40 portfolio of stocks and bonds.

Risk parity operates under the notion that in a classic portfolio, stocks take up way more of the risk than their allocation, so the allocation to stocks is lowered, and less risky assets such as bonds and commodities get a higher weighting. The historically less risky asset classes are then boosted by leverage to try to match the same returns as a 60/40 portfolio, with less overall risk.


The Global Markets Strategy Fund starts with the same basic notion but has more freedom to maneuver between asset classes.

Its goal is to derive about 80% of returns from tactical bets and 20% from asset allocation, which is the reverse of the balanced-risk-allocation fund, portfolio manager Scott Wolle said.

It can even go short if the outlook for a particular asset class, such as bonds, is grim.

“It can be better positioned within global markets if we have a large number of assets falling,” Mr. Wolle said.

The increased flexibility has paid off this year for the Global Markets Strategy Fund.

In the second quarter, when long-term interest rates skyrocketed from 1.6% to about 2.5%, the balanced-risk-allocation fund, which is long-only and has at least 16% of risk coming from bonds, lost more than 5%, similar to other risk-balanced funds.

The Global Markets Strategy Fund, which has no minimum allocation to bonds, was down half that much.

In fact, year-to-date through Sept. 6, it was up 4%, according to Morningstar Inc.

The balanced-risk-allocation fund was basically flat over the same time period.

Still, it has some catching up to do to improve on the classic 60/40 portfolio.

The Vanguard Balanced Index Fund (VBINX), which simply invests in a 60/40 mix of the total U.S. stock market and the Barclays Aggregate Bond Index, had a 10% return year-to-date.


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