Identifying strategies to help tailor portfolios for volatile markets

Key takeaways:

A smoother ride

Consider low volatility stocks for a risk-aware approach to growth potential

Focus on diversification

Look to asset allocation solutions to help diversify your portfolio

Strategies that seek to combine upside potential with downside risk mitigation.

In an ideal world, fundamentals alone would drive the markets. But that’s not the world we’re living in – or investing in. Today, a tweet in the morning can drive a sell-off in the afternoon, only to be reversed by the next day’s headlines. But jumping in and out of the markets to avoid volatility can be even more damaging to a portfolio than simply riding it out.

But while volatility can't be eliminated, it can be managed. There are a number of tools and strategies that are designed to help investors participate in the upside while mitigating the risks of the downside.

Invesco offers a suite of investment strategies designed to help manage volatility.

Balanced-risk strategies

Invesco Balanced-Risk Allocation Fund (ABRZX) An actively managed mutual fund that seeks total return with a low to moderate correlation to traditional financial market indexes. The fund splits its risk evenly among stocks, bonds and commodities, and then it can take advantage of market opportunities by tactically over or underweighting an asset within a 2% risk budget.
Invesco Balanced-Risk Retirement Now Fund (IANAX) A target maturity strategy that seeks to provide real return and, as a secondary objective, capital preservation.
Invesco Balanced-Risk Retirement 2020 Fund (AFTAX)
Invesco Balanced-Risk Retirement 2030 Fund (TNAAX)
Invesco Balanced-Risk Retirement 2040 Fund (TNDAX)
Invesco Balanced-Risk Retirement 2050 Fund (TNEAX)
The 2020, 2030, 2040 and 2050 funds are all target maturity strategies that seek to provide total return with a low to moderate correlation to traditional financial market indices and, as a secondary objective, capital preservation.
Invesco Macro Allocation Strategy Fund (GMSDX) An actively managed mutual fund that seeks a positive absolute return over a complete economic and market cycle. The fund provides exposure to stocks, bonds and commodities using a risk-balanced approach.
Invesco Balanced-Risk Commodity Strategy Fund (BRCAX) An actively managed mutual fund that seeks to provide total return. The fund seeks to achieve its investment objective by investing in derivatives and other commodity-linked instruments that provide exposure to the following four sectors of the commodities markets: agriculture, energy, industrial metals and precious metals.

Low volatility stocks

Invesco S&P 500 Low Volatility ETF (SPLV) The Invesco S&P 500 Low Volatility ETF seeks to track the S&P 500 Low Volatility Index, which consists of the 100 securities from the S&P 500 Index with the lowest realized volatility over the past 12 months.
Invesco S&P MidCap Low Volatility ETF (XMLV) The Invesco S&P MidCap Low Volatility ETF seeks to track the S&P MidCap 400 Low Volatility Index, which consists of 80 out of 400 medium-capitalization securities from the S&P MidCap 400 Index with the lowest realized volatility over the past 12 months.
Invesco S&P SmallCap Low Volatility ETF (XSLV) The Invesco S&P SmallCap Low Volatility ETF seeks to track the S&P SmallCap 600 Low Volatility Index, which consists of 120 out of 600 small-capitalization securities from the S&P SmallCap 600 Index with the lowest realized volatility over the past 12 months.
Important information about the balanced-risk strategies

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.

Should the Fund's asset classes or the selected countries and investments become correlated in a way not anticipated by the Adviser, the risk allocation process may result in magnified risks and loss instead of balancing (reducing) the risk of loss.

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.

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.

The risks of investing in securities of foreign issuers, including emerging markets, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

There is no guarantee that low-volatility funds will provide low volatility.

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

Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.

By investing in the subsidiary, the fund is indirectly exposed to risks associated with the subsidiary's investments, including derivatives and commodities. Because the Subsidiary is not registered under the Investment Company Act of 1940, as amended (1940 Act), the Fund, as the sole investor in the Subsidiary, will not have the protections offered to investors in U.S. registered investment companies.

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.

Underlying investments may appreciate or decrease significantly in value over short periods of time and cause share values to experience significant volatility over short periods of time.

The target maturity funds are subject to the risks of the underlying funds. Market fluctuations may change the target weightings in the underlying funds and certain factors may cause the fund to withdraw its investments therein at a disadvantageous time.

Underlying investments may appreciate or decrease significantly in value over short periods of time and cause an underlying fund's shares to experience significant volatility over short periods of time.

Although an underlying money market fund seeks to preserve the value of the Invesco Balanced-Risk Retirement Now Fund's investment at $1.00 per share, the Fund may lose money by investing in an underlying money market fund.

Certain funds are non-diversified and may experience greater volatility than a more diversified investment.

Commodity-linked notes may involve substantial risks, including risk of loss of a significant portion of principal and risks resulting from lack of a secondary trading market, temporary price distortions, and counterparty risk.

Changes in the value of two investments or asset classes may not track or offset each other in the manner anticipated by the portfolio managers, which may inhibit their risk allocation process from achieving its investment objective.

An investment in exchange-traded funds (ETFs) may trade at a discount to net asset value, fail to develop an active trading market, halt trading on the listing exchange, fail to track the referenced index, or hold troubled securities. ETFs may involve duplication of management fees and certain other expenses. Certain of the ETFs the fund invests in are leveraged, which can magnify any losses on those investments.

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

Important Information about the ETFs

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.

Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

S&P® is a registered trademark of Standard & Poor's Financial Services