Invesco’s multi-asset team responds to Swiss franc fallout
Invesco Perpetual’s Head of Multi Asset, David Millar (pictured), explains how the surprise move by the Swiss National Bank to remove its euro ceiling called for an immediate review of one of their investment ideas.
- UK versus Switzerland equity idea removed from portfolio following the SNB move
- Short position on euro against the US dollar contributed positively to fund performance and will be maintained
- Cyclicals vs defensives theme is still expressed in the fund through some of the fund’s holdings in underlying Invesco Perpetual portfolios
Recent market volatility from the Swiss National Bank’s (SNB) move to unpeg the Swiss franc, but also before that from the sharp fall in oil, has served as a timely reminder to us to ensure that we always follow our three-step process of: reviewing our ideas (always on a two- to-three-year outlook); risk testing any portfolio changes; and only then implementing them in markets.
Normally, the ideas meetings for this follow a regular schedule but when markets are as volatile as they have been, we can have ad-hoc meetings, as long as the three-step process is still followed.
We had only recently reviewed our UK versus Switzerland equity idea, an expression of cyclicals versus defensives, which had proven difficult for us and had a negative return since its introduction to the Invesco Perpetual Global Targeted Returns Fund.
The move by the SNB changed everything about the idea – Swiss equities dived and it regained about half of our recent losses on the idea in one day – and so we updated the charts, called an ad-hoc ideas meeting, and concluded that we should remove the idea as the two- to-three-year outlook had now completely changed.
We are also comfortable that the cyclicals vs defensives theme is still expressed in the fund through some of our holdings in underlying Invesco Perpetual portfolios. Once the APT (our third party risk management solution) risk work had been done on removing the UK versus Switzerland equity idea from the portfolio, we passed it over to our Alternatives dealing team for swift execution.
Other ideas have benefitted too. We are still short the euro against the US dollar, which contributed positively to fund performance following the further move after the SNB action.
In other areas, being short the Canadian dollar versus the US dollar has benefitted from the falling oil price (offsetting losses we have made from being long the Norwegian krone vs the UK pound) and the general market move to recognising disinflationary forces has proved beneficial for our US duration, UK versus France rates, short UK inflation and Japanese curve flattener ideas.
An exciting start to the year!!