Invesco Floating Rate FundAlternatives | Bank Loans
Objective & Strategy
The fund seeks total return, comprised of current income and capital appreciation by investing at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in senior secured floating rate loans made by banks and other financial institutions and in senior secured floating rate debt instruments.
Taxable noninvestment grade
Invesco Floating Rate Fund seeks to provide a high level of current income and capital appreciation by investing in senior loans made to corporations (usually rated below investment grade) by large banks and other financial institutions.
Distinct structure may help mitigate risk
We believe the unique structure of senior secured loans typically helps mitigate credit and interest rate risk and the growing popularity of these loans has helped to reduce liquidity risk.
Senior Secured Loans Are A Priority of Repayment in the Event of Default
Senior secured loans rank highest in the capital structure
This unique asset class behaves differently from traditional fixed income investments.
- Floating Rates. The rate of return for loans is usually determined by a fixed credit spread over the London Interbank Offering Rate (LIBOR). As interest rates (and LIBOR) move, the absolute return for the loan will self-adjust to changes in market interest rates. Returns on senior secured loans typically increase in a rising rate environment and decrease in declining interest rate environment.
- Current Income. Senior secured loans, like traditional bond funds, generate current income as companies pay their contractual interest on (at least) a quarterly basis.
- Low Correlation. Due to their unique structure senior secured loans have historically had a low correlation with other types of fixed income investments such as government bonds, municipal and investment grade bonds as well as equities. Incorporating senior secured loans can complement other investments as well as provide diversification to a portfolio.
Diversification does not guarantee a profit or eliminate the risk of loss
Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude.
Strong yield relative to other Income options
Senior secured loans have provided a very competitive yield relative to other traditional income investments. With senior secured loans this income stream comes with the added benefits of short duration while being senior in the priority of payments and secured by assets of the borrower.
Loans Have Continued to Offer Investors a High Level of Current Income with Short DurationSource: Bloomberg L.P., Barclays, BAML, S&P LCD as of June 30, 2015. IG Corp Bonds represented by the Barclays U.S. Corporate Investment Grade Index; Senior Loans represented by the S&P/LSTA Leveraged Loan Index ; High Yield Bonds represented by the BofA Merrill Lynch High Yield Master Index. Past performance cannot guarantee comparable future results. An investment cannot be made directly in an index.
|$ Price||Yield (%)||Duration (years)|
|5 Year Treasury||99.28||1.65||4.77|
|10 Year Treasury||97.32||2.35||8.80|
|Barclays US Agg Index||103.96||2.39||5.63|
|Barclays IG Index||104.74||3.25||6.95|
|ML US HY Index||98.21||6.65||4.49|
|S&P/LSTA Index||97.20||L + 5.26||45-60 Days|
Source: Bloomberg L.P., Barclays, BAML, and S&P LCD as of June 30, 2015. Loan yields incorporate LIBOR forward curve as of June 30, 2015.
Duration is the measure of a debt security's price sensitivity to interest rate changes, expressed in terms of years. Securities with longer durations usually are more sensitive to interest rate movements than those with shorter durations. Should interest rates change, the value of a fund that invests in securities with longer durations will fluctuate more than the value of a fund that invests in securities with shorter durations.
The Barclays U.S. Aggregate (Barclays US Agg) Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
The Barclays U.S. Corporate Investment Grade (Barclays IG) Index represents investment-grade corporate securities within the Barclays U.S. Aggregate Index.
The S&P/LSTA Leveraged Loan Index Leveraged Loan Index is a weekly total return index that tracks the current outstanding balance and spread over Libor for fully funded term loans.
The BofA Merrill Lynch High Yield Master (ML US HY) Index tracks the performance of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic market.
Invesco Senior Secured Management, Inc. (“Invesco”), with $30 billion under management, is one of the largest institutional managers of senior loans. Invesco developed one of the first institutional senior loan platforms and, ultimately, helped foster the maturation of the syndicated senior loan market. Invesco takes a long term, consistent approach to managing the senior loan market using active, bottom-up research and our senior loan platform is supported by global resources of Invesco Ltd., one of the world’s largest asset management companies.
Key highlights of Invesco Senior Secured Management
- One of the leading pure-play investment managers with exclusive focus on senior secured senior loans
- $30 billion under management across retail and institutional senior loans
- Global team with local coverage in the US and Europe
- Managing the asset class since 1989
- 29 investment professionals with more than 17 years experience
- Market experts through multiple stages of credit cycles
- Multi-faceted product suite of strategic open-end and tactial closed-end funds
- Ability to deliver customized and/or opportunistic loan strategies
Deep and experienced senior loan team
Invesco has 38 professionals exclusively dedicated to its senior loan platform.
|Head of Global Senior Loans|
|Investment Research and Portfolio Management|
|Senior Portfolio Manager||Senior Portfolio Manager||Senior Portfolio Manager|
|Joe Rotondo||Kevin Egan||Tom Ewald|
|Product Management Director||Client Portfolio Management||Senior Loan Administration|
|Brian Mitchell||Kevin Petrovcik||Robert Drobny|
As of June 30, 2015. Subject to change.
Morningstar Rating™Overall Rating - Bank Loan Category
As of 07/31/2015 the Fund had an overall rating of 3 stars out of 195 funds and was rated 3 stars out of 195 funds, 3 stars out of 125 funds and 3 stars out of 54 funds for the 3-, 5- and 10- year periods, respectively.
Source: Morningstar Inc. Ratings are based on a risk-adjusted return measure that accounts for variation in a fund's monthly performance (including the effect of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The overall rating is derived from a weighted average of three-, five- and 10-year rating metrics, as applicable. ©2015 Morningstar Inc. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers. It may not be copied or distributed and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance does not guarantee future results. A fund is eligible for a Morningstar Rating three years after inception. The top 10% of funds in a category receive five stars, the next 22.5% four stars, the next 35% three stars, the next 22.5% two stars and the bottom 10% one star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Ratings for other share classes may differ due to different performance characteristics.
Average Annual Returns (%)
|YTD (%)||1Y (%)||3Y (%)||5Y (%)||10Y (%)|
Annualized Benchmark Returns
|Index Name||1 Mo (%)||3 Mo (%)||1Y (%)||3Y (%)||5Y (%)||10Y (%)|
|CS Leveraged Loan IX TR||0.09||-0.02||2.29||4.97||5.47||4.67|
|Barclays US Aggregate TR||0.70||-0.64||2.82||1.60||3.27||4.61|
|CS Leveraged Loan IX TR||-0.31||0.79||2.15||5.28||5.75||4.74|
|Barclays US Aggregate TR||-1.09||-1.68||1.86||1.83||3.35||4.44|
Source: Bloomberg LP
Source: FactSet Research Systems Inc.
An investment cannot be made directly in an index.
Expense Ratio per Prospectus
|Total Other Expenses||0.18|
|Acquired Fund Fees and Expenses (Underlying Fund Fees & Expenses)||0.01|
|Total Annual Fund Operating Expenses||1.05|
|Net Expenses - PER PROSPECTUS||1.04|
|Net Expenses - With Additional Fee Reduction||1.04|
|Ex-Date||Income||Short Term||Long Term|
|3-Year Sharpe Ratio||2.00|
|3-Year Standard Deviation||2.12|
|Number of Securities||0|
Source: FactSet Research Systems Inc., StyleADVISOR
Benchmark: CS Leveraged Loan IX TR
|% of Total Assets|
The holdings are organized to mirror the Credit Suisse High Yield Bond Index industry classifications. These classifications are the exclusive property and service mark of Credit Suisse AG.
Changing Fixed Income Market Conditions Risk. The current historically low interest rate environment was created in part by the Federal Reserve Board (FRB) and certain foreign central banks keeping the federal funds and equivalent foreign rates at or near zero. There is a risk that interest rates will rise when the FRB and central banks raise these rates. This risk is heightened due to the "tapering" of the FRB's quantitative easing program and other similar foreign central bank actions. This tapering and eventual increase in the federal funds and equivalent foreign rates may expose fixed income markets to heightened volatility and reduced liquidity for certain fixed income investments, particularly those with longer maturities. In addition, decreases in fixed income dealer market-making capacity may also potentially lead to heightened volatility and reduced liquidity in the fixed income markets. As a result, the value of the Fund's investments and share price may decline. Changes in central bank policies could also result in higher than normal shareholder redemptions, which could potentially increase portfolio turnover and the Fund's transaction costs.
Collateralized Loan Obligations Risk. In addition to the normal interest rate, default and other risks of fixed income securities, collateralized loan obligations carry additional risks, including the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the Fund may invest in collateralized loan obligations that are subordinate to other classes, values may be volatile, and disputes with the issuer may produce unexpected investment results.
Credit Linked Notes Risk. Risks of credit linked notes include those risks associated with the underlying reference obligation including but not limited to market risk, interest rate risk, credit risk, default risk and foreign currency risk. In the case of a credit linked note created with credit default swaps, the structure will be "funded" such that the par amount of the security will represent the maximum loss that could be incurred on the investment and no leverage is introduced. An investor in a credit linked note bears counterparty risk or the risk that the issuer of the credit linked note will default or become bankrupt and not make timely payment of principal and interest of the structured security.
Credit Risk. The issuer of instruments in which the Fund invests 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. Even in the case of collateralized debt obligations, there is no assurance that the sale of collateral would raise enough cash to satisfy an issuer's payment obligations or that the collateral can or will be liquidated.
Defaulted Securities Risk. Defaulted securities involve the substantial risk that principal will not be repaid. Defaulted securities and any securities received in an exchange for such securities may be subject to restrictions on resale.
Derivatives Risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund's returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund's ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Floating Rate Risk. The Fund may invest in floating rate loans and debt securities that require collateral. There is a risk that the value of the collateral may not be sufficient to cover the amount owed, collateral securing a loan may be found invalid, and collateral may be used to pay other outstanding obligations of the borrower under applicable law or may be difficult to sell. There is also the risk that the collateral may be difficult to liquidate, or that a majority of the collateral may be illiquid.
Foreign Securities Risk. The Fund's foreign investments may be affected by changes in a foreign country's exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High Yield Bond (Junk Bond) Risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high-quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Industry Focus Risk. To the extent a Fund invests in securities issued or guaranteed by companies in the banking and financial services industries, the Fund's performance will depend on the overall condition of those industries, which may be affected by the following factors: the supply of short-term financing, changes in government regulation and interest rates, and the overall economy.
Interest Rate Risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Liquidity Risk. The Fund may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities. The majority of the Fund's assets are likely to be invested in loans and securities that are less liquid than those traded on national exchanges. The risks of illiquidity are particularly important when the Fund's operations require cash, and may in certain circumstances require that the Fund borrow to meet short-term cash requirements. Illiquid securities are also difficult to value. In the event the Fund voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those assets.
Management Risk. The investment techniques and risk analysis used by the Fund's portfolio managers may not produce the desired results.
Market Risk. The prices of and the income generated by the Fund's securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Prepayment Risk. An issuer's ability to prepay principal on a loan or debt security prior to maturity can limit the Fund's potential gains. Prepayments may require the Fund to replace the loan or debt security with a lower yielding security, adversely affecting the Fund's yield.