Morningstar Advisor - October/November 2013 - (Page 24)
Investment Briefs
unknown effects of ongoing changes keep
its corporate culture grade from standing above
industry norms.
When CEO Marty Flanagan took the reins in
2005, he took over a firm that was still
reeling from several missteps, and his actions
since then have inspired some confidence
that he could be able to right the ship.
A previous co-president at Franklin Templeton,
Flanagan and his Invesco executive team
have improved the firm’s funds and their
performance. Importantly, Flanagan and his
team improved communication among the
firm’s global teams and provided better support
to the funds’ board of directors.
Invesco has continued to expand under
Flanagan’s watch. Two large transactions
in recent years created major transformations
for the firm. The first was the acquisition
of PowerShares in 2006. PowerShares
was a pioneer in the exchange-traded fund
marketplace, most well-known for its
PowerShares QQQ QQQ fund but also for its
plethora of specialty-niche ETFs, and
it provided Invesco a strong entry into the
rapidly growing ETF business. Invesco
has adopted a more robust vetting process prior
to product launches by putting new ETF
ideas through the same product development
process the firm uses for its open-end
funds. As a result, the pace of ETF launches has
come down and the firm has mostly avoided
any far-flung strategies.
Invesco’s 2010 purchase of a suite of mutual
funds from Van Kampen strengthened the firm’s
open-end mutual fund lineup. The merger
provided access to a strong suite of value-style
equity and municipal-bond funds, two
areas where Invesco historically had weak
product offerings. Invesco did an exemplary job
integrating the funds into its lineup. While
manager changes and fund mergers can
be disruptive to an organization and its
fundholders, Invesco was swift and efficient
about it, and also communicated clearly with
employees and investors, saying which
24 Morningstar Advisor October/November 2013
funds—and management teams—would stay
in place and which would not.
There are signs that the firm is focused on
building a sustainable investment culture. After
a failed attempt to hire a firmwide chief
investment officer in 2009, Invesco established
a co-CIO structure. On the equity side,
there are group CIOs for U.S. Growth Equity,
U.S. Core Equity, U.S. Value Equity, and
International Growth Equity, while the
fixed-income side is managed by a single CIO.
Each area has retained its independence
and unique investing culture. For example, U.S.
Core Equity CIO Ron Sloan gives analysts
responsibility for managing a sleeve of his
funds, while U.S. Growth Equity CIO Juliet Ellis
emphasizes mentoring analysts coming up the
ranks, rotating them through various sectors
to broaden their experience. Even so, efforts to
cross-pollinate research among the teams,
such as shared sector-based teams and more
frequent communication between the teams,
seem to be losing steam among some groups.
Meanwhile, continued turnover among certain
groups is concerning. Manager retention
across the firm is relatively low compared with
other similarly sized firms, a result of both
recent mergers and ongoing changes. For
example, the Negative-rated Invesco Global
Core Equity AWSAX has experienced changes
at both the manager and analyst levels
and has struggled to stand out. U.S. Growth
Equity CIO Juliet Ellis also oversees a group in
flux. In 2010, she hired Erik Voss (and colleague
Ido Cohen) from J&W Seligman to invigorate
the firm’s large-growth funds. Even so,
continuous churn at the portfolio-management
level and among the analysts on the growth
team may be contributing to substandard
performance at funds such as Invesco
American Franchise VAFAX and Invesco Summit
SMMIX. In 2013, Jim Leach—a 2011 hire
who took over the mid-cap Invesco Capital
Development and Invesco Van Kampen
Mid Cap Growth VGRAX following a string of
poor performance—took the lead of small-
growth manager Matthew Hart’s team
in an effort to shore up resources between the
small- and mid-growth groups.
On the fixed-income side, Invesco has been
adding resources to its relatively lackluster
taxable-bond funds. Greg McGreevey,
former CIO for all of Hartford’s insurance
portfolios, was hired in late 2011 to head up
Invesco’s fixed-income capabilities. The firm
has also invested in technology for the
group and is making an effort to consolidate
several regional offices. The team has also
made external hires to add macroeconomic
analysis capabilities. While an increase in
resources could be beneficial, the new
structure is unproven. It is worth watching to
see whether the changes are additive to results.
The firm has made some strides in communicating with fundholders and the financial advisors
that sell its funds. Market commentaries as
well as frequent videos and reports from
portfolio managers posted on the firm’s website
provide timely insights for investors, for
example. The sales team also asserts that it’s
more focused on educating advisors and
investors on the nuances involved in the
somewhat complicated structure of the firm’s
first risk-parity fund, Invesco Balanced-Risk
Allocation ABRZX, which was launched in 2009.
That said, the firm continues to advertise
that fund’s performance prominently on its
website, and it’s by far Invesco’s best-selling
fund over the past three years, now with
roughly $13 billion in assets.
Invesco’s overall corporate culture is headed
on the right path. While the directives
from top management seem to demonstrate
the firm is keeping investors front of mind, it
will take time to see whether the changes
throughout the firm are sticky and whether this
iteration of the firm can stand at the same level
of more-established peers and deliver
consistent results for investors.
Kathryn Spica, CFA, is a mutual fund analyst
at Morningstar.
Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2013
Morningstar Advisor - October/November 2013
Contents
Contributors
Letter From the Editor
How to Make Social Media Work for You
Do Mutual Funds Still Have a Role?
More Personal Than Finance
How to Handle Your TIPS Positions
A Real Estate Veteran Starts From Scratch
Investments á la Carte
Investment Briefs
When to Say No
Take a Guarded Approach to Homebuilders
Fund Distribution Has Been Turned on Its Head. Now What?
Winning the Distribution Battle
Active ETFs Wait for Their Heyday
A Fund Firm Defies Indexing Trend
Piloting New Channels
A Good Fit
The Predictive Power of Fair Value Estimates
Does Being Prudent Pay Off?
Utilizing Utilities’ Total Return
Stuck in the Middle Is Not a Bad Place to Be
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Good Guys Win
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