How to Use Alternatives

Alternative Strategies to Address Investor Objectives

Five Alternative Approaches to Meet Your Needs

Alternative strategies may provide diversification, reduce volatility, generate returns and/or provide new sources of income. Invesco offers five strategic approaches to address your specific portfolio concerns.

To determine how various types of alternatives may be most effectively used, we set out to broadly categorize the universe under the following structure:

Potential to hedge against inflation and generate current income

With central banks injecting large amounts of money into the markets, many investors are concerned about the emergence of inflation. In order to potentially protect against inflation, investors should consider adding alternative asset classes, such as real estate investment trusts (REITs), commodities and infrastructure to their portfolios. Inflation hedging investments have similar return and risk characteristics to equities and may also produce attractive levels of current income.

  • Provide exposure to real assets that have physical or tangible qualities such as precious metals, industrial metals, energy or agriculture.
  • Potential for outperformance during periods of increased equity volatility, amid geopolitical or economic uncertainty and in inflationary environments.
Mutual Fund

BRCAX Invesco Balanced-Risk Commodity Strategy Fund

Exchange-Traded Funds

DBA Invesco DB Agriculture Fund

DBB Invesco DB Base Metals Fund

DBC Invesco DB Commodity Index Tracking Fund

DBE Invesco DB Energy Fund

DGL Invesco DB Gold Fund

DBO Invesco DB Oil Fund

DBP Invesco DB Precious Metals Fund

DBS Invesco DB Silver Fund

  • Can provide portfolio diversification, with fairly low correlation to other major asset classes.
  • Offer additional diversification potential for a global real estate portfolio because of demonstrated low correlations between countries.
  • Can be an attractive way to gain yield for investors seeking income.
  • May benefit from the increased rental cash flows that typically accompany inflation.
Mutual Funds

IARAX Invesco Real Estate Fund

AGREX Invesco Global Real Estate Fund

ASRAX Invesco Global Real Estate Income Fund

Exchange-Traded Funds

PSR Invesco Active U.S. Real Estate ETF

KBWY Invesco KBW Premium Yield Equity REIT ETF

Unit Investment Trust

VCSR REIT Income Portfolio

  • May act as a natural hedge against inflation as the revenue from their income stream is adjusted upward.
  • Can provide diversification, as well as a fairly stable income stream, from investing in companies that own or operate infrastructure assets, such as bridges, toll roads, water supplies and pipelines.
Mutual Fund

GIZAX Invesco Global Infrastructure Fund

Unit Investment Trust

INFA American Infrastructure Growth Portfolio

  • May offer high income while diversifying equity portfolios through fairly low correlations with broad markets because they must distribute most of their income in order to qualify for special tax treatment.
  • May provide exposure to the continued build-out of the US energy infrastructure.
  • May offer a natural hedge against inflation as their distributions grow as a result of new shale energy technologies and through inflation-adjusted tariffs.
Mutual Fund

ILPAX Invesco MLP Fund

Unit Investment Trust

MLPI MLP & Income Portfolio

Seeks capital preservation and positive returns

Given the length of the current bull market and the low level of interest rates, many investors are concerned about the impact that a declining stock and/or bond market would have on their portfolio. To help buffer their portfolios, investors may consider an alternatives strategy known as "principal preservation." This strategy seeks to generate positive returns regardless of market environment, and typically has return and risk characteristics similar to that of bonds.

  • Use offsetting long and short stocks in dollar-matched equity portfolios and attempt to limit nonsecurity-specific risk by adjusting a portfolio's beta, sector/industry exposure, investment style, country/regional allocation or currency exposure.
Mutual Funds

CPNAX Invesco All Cap Market Neutral Fund

MKNAX Invesco Global Market Neutral Fund

  • Beyond the arbitrage techniques used in equity market neutral and absolute return fixed income strategies, there are any number of approaches managers can take as they seek to exploit pricing inefficiencies between related securities. These strategies seek the potential for positive returns in any market and may provide portfolio diversification.
Exchange-Traded Fund

DBV Invesco DB G10 Currency Harvest Fund

Strives to generate attractive non-correlated returns

One of the advantages of alternative investments is that they may enable an investor to pursue opportunities that exist outside of the stock and bond markets. Such strategies typically invest on both a long and short basis across the global financial markets (stocks, bonds, currencies, commodities, etc.). These global investing and trading strategies may help diversify the sources of return within an investor's portfolio, and seek to generate stock-like returns with lower levels of risk than stocks.

  • Can be used as a core allocation or as a diversifier to a more traditional portfolio.
  • Construct portfolios so that each asset contributes a relatively equal amount of risk to the strategic allocation.
  • Seek to limit the effect that one underperforming asset may have on overall strategy performance.
  • May include a tactical overlay in portfolios that allows managers to opportunistically adjust the strategic allocation.
Mutual Funds

ABRZX Invesco Balanced-Risk Allocation Fund

  • Base investment decisions on macro views of various markets around the world.
  • May take long and short positions within and across such asset classes as equities, fixed income and currencies.
Mutual Funds

GMSDX Invesco Macro Allocation Strategy Fund

GLTAX Invesco Global Targeted Returns Fund

  • Invest in a number of different types of non-traditional asset classes and strategies.
  • Typically target equity-like returns with lower volatility.
  • Attempt to provide exposure to multiple alternatives in a single investment.
Mutual Funds

LQLAX Invesco Alternatives Strategies Fund

Unit Investment Trust

ALTS Alternatives Allocation Portfolio

  • Returns have historically exhibited low correlation to stock and bond returns.
  • May help mitigate portfolio volatility.
  • Strategies can provide portfolio diversification by taking either a long or short position in a single foreign currency or a basket of currencies.
Exchange-Traded Funds

FXCH Invesco CurrencyShares Chinese Renminbi Trust

FXB Invesco CurrencyShares British Pound

FXS Invesco CurrencyShares Swedish Krona Trust

FXY Invesco CurrencyShares Japanese Yen Trust

FXA Invesco CurrencyShares Australian Dollar Trust

FXC Invesco CurrencyShares Canadian Dollar Trust

FXF Invesco CurrencyShares Swiss Franc Trust

FXE Invesco CurrencyShares Euro Trust

FXSG Invesco CurrencyShares Singapore Dollar Trust

UDN Invesco DB US Dollar Index Bearish Fund

UUP Invesco DB US Dollar Index Bullish Fund

Offers participation in equity market upside with potential reduced downside risk

For most investors, the largest allocation in their portfolio is to equities. Alternative equities strategies enable investors to diversify this exposure by investing in stocks on a long and short basis, and/or an unconstrained basis, which means the portfolio manager can invest wherever he or she sees an attractive idea. These strategies have the potential to generate equity-like returns with lower risk than traditional stocks.

  • Typically take both long and short positions in an effort to benefit from rising stock prices on the long side and declining stock prices on the short side.
  • Seek to hedge against downside risk.
  • Often try to mitigate volatility by diversifying and/or hedging positions across sectors, industries, regions and/or market capitalizations.
Mutual Funds

LSQAX Invesco Long/Short Equity Fund

  • Can seek ideas wherever they find them in the equity markets.
  • Often have the ability to short or use leverage.
  • May find their ideas through either top-down or bottom-up strategies.
  • Seek to reduce exposure to volatility while also enhancing returns.
  • Invest in the equity markets.
  • May use derivative instruments such as options or other investment techniques in an effort to control volatility or guard against losses.
Exchange-Traded Funds

PBP Invesco S&P 500 BuyWrite ETF

PHDG Invesco S&P 500 Downside Hedged ETF

Potential to boost yield, protect against rising rates and/or generate returns different from traditional fixed income investments

Investors have two concerns about fixed income: 1) what happens when interest rates rise from their historic low levels, and 2) how can they generate attractive levels of current income given the low level of interest rates. Some alternative fixed income strategies may help investors enjoy the benefits of rising interest rates (increased current income), while potentially minimizing the downside (declining value). Others are designed to seek positive total returns in both rising and falling rate environments. Furthermore, some of these strategies may help generate attractive levels of current income. In general, alternative fixed income strategies have return and risk characteristics similar to that of bonds.

  • Are privately arranged senior debt instruments that provide capital to companies that are usually below investment grade.
  • Have historically low correlations to traditional bonds, making them a potential diversifier for a fixed income allocation.
  • Are structured with floating rates, which keep their duration low and allow their coupons to adjust upward as rates rise, making them an attractive source of yield to consider in a rising-rate environment.
Mutual Funds

AFRAX Invesco Floating Rate Fund

VSLAX Invesco Senior Loan Fund

Exchange-Traded Funds

BKLN Invesco Senior Loan ETF

Unit Investment Trust

LOAN Senior Loan and Limited Duration Portfolio

Use the Invesco AltsAnalyzer to build a portfolio that includes alternatives focused on your client's investment objectives.

Use the Invesco AltsAnalyzer to build a portfolio that includes alternatives focused on your client's investment objectives.

Invesco DB funds:
Commodities, currencies and futures generally are volatile and are not suitable for all investors.

The funds are speculative and involve a high degree of risk. An investor may lose all or substantially all of an investment in the funds. Ordinary brokerage commissions apply. See the prospectus for other risk disclosures.

The Invesco DB funds are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing.

These funds are not suitable for all investors due to the speculative nature of an investment based upon the funds’ trading which takes place in very volatile markets. Because an investment in futures contracts is volatile, such frequency in the movement in market prices of the underlying futures contracts could cause large losses. Please see the prospectus for additional risk disclosures.

The shares of the funds are not deposits, interests in or obligations of any Deutsche Bank AG, Deutsche Bank AG London Branch, Deutsche Bank Securities Inc. or any of their respective subsidiaries or affiliates or any other bank (collectively, the "DB Parties") and are not guaranteed by the DB Parties.

The indices underlying the Invesco DB funds are products of Deutsche Bank AG and/or its affiliates. Information regarding the index is reprinted with permission. Deutsche Bank® and DBare trademarks of Deutsche Bank AG. The index and trademarks have been licensed for use for certain purposes by Invesco Capital Management LLC, an affiliate of Invesco Distributors, Inc. The funds are not sponsored, endorsed, sold or promoted by Deutsche Bank AG, Deutsche Bank AG, London Branch, Deutsche Bank Securities Inc. or any of their affiliates ("Deutsche Bank") or third party licensors and none of such parties makes any representation, express or implied, regarding the advisability of investing in the funds, nor do such parties have any liability for errors, omissions, or interruptions in the indices. The indices are calculated and administered by Deutsche Bank without regards to the funds.

Invesco Capital Management LLC and Invesco Distributors, Inc. are not affiliated with Deutsche Bank Securities Inc.

CurrencyShares trusts:
CurrencyShares are subject to risks similar to those of stocks and may not be suitable for all investors. The value of the shares relates directly to the value of the respective currency held by the trust. Fluctuations in the price of the respective currency could materially and adversely affect the value of the shares.

The respective currency’s exchange rate, like foreign exchange rates in general, can be volatile and difficult to predict. This volatility could materially and adversely affect the performance of the shares. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

If interest earned by the trusts’ do not exceed the trusts’ expenses, the trustees will withdraw the currency from the trust to pay these excess expenses, which will reduce the amount of currency represented by each share on an ongoing basis and may result in adverse tax consequences for shareholders.

The interest rate paid by the depository, if any, may not be the best rate available. If the sponsor determines that the interest rate is inadequate, then its sole recourse is to remove the depository and terminate the deposit accounts.

If the trusts incur expenses in USD, the trusts would be required to sell the respective currency to pay these expenses. The sale of the trust’s currency to pay expenses in USD at a time of low prices of the currency could adversely affect the value of the shares.

Substantial sales of the respective security by the official sector could adversely affect an investment in the shares.

The funds are subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the funds.

There are risks involved with investing in ETFs including possible loss of money. Index–based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index–based and actively managed ETFs are subject to risk similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. Please be aware that the mutual funds and ETF’s listed may be subject to certain additional risks. See the prospectus for complete details about the risks associated with each fund.

Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate. You can lose money.

Diversification does not guarantee a profit or eliminate the risk of loss.

Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer's credit rating.

Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments.

The dollar value of foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.

The performance of derivative instruments is tied to the performance of an underlying currency, security, index, commodity or other asset. In addition to risks relating to their underlying assets, the use of derivatives may include other, possibly greater, risks. Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested. Each of these risks is greater for the Fund than most other mutual funds because its investment strategy is implemented primarily through derivatives rather than direct investments in more traditional securities.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Investing in infrastructure involves risk, including possible loss of principal. Portfolios concentrated in infrastructure securities and MLPs may experience price volatility and other risks associated with non-diversification. Investment in infrastructure-related companies may be subject to high interest costs in connection with capital construction programs, costs associated with environmental and other regulations, the effects of economic slowdown and surplus capacity, the effects of energy conservation policies, governmental regulation and other factors.

Most MLPs operate in the energy sector and are subject to the risks generally applicable to companies in that sector, including commodity pricing risk, supply and demand risk, depletion risk and exploration risk. MLPs are also subject the risk that regulatory or legislative changes could eliminate the tax benefits enjoyed by MLPs which could have a negative impact on the after-tax income available for distribution by the MLPs and/or the value of the portfolio's investments.

Alternative investment products, including hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment.

Investments in real estate related instruments may be affected by economic, legal, or environmental factors that affect property values, rents or occupancies of real estate. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies and their shares may be more volatile and less liquid.

Most senior loans are made to corporations with below investment-grade credit ratings and are subject to significant credit, valuation and liquidity risk. The value of the collateral securing a loan may not be sufficient to cover the amount owed, may be found invalid or may be used to pay other outstanding obligations of the borrower under applicable law. There is also the risk that the collateral may be difficult to liquidate, or that a majority of the collateral may be illiquid.

Short sales may cause an investor to repurchase a security at a higher price, causing a loss. As there is no limit on how much the price of the security can increase, exposure to potential loss is unlimited.