Fund manager profile: Invesco’s Millar on recent changes to macro strategy

It has been nearly five years since fund manager David Millar left Standard Life Investments to join Invesco Perpetual.

Between 2008 and 2012 Millar ran SLI’s flagship Global Absolute Return Strategies fund together with co-managers Dave Jubb and Richard Batty, before the trio left for the rival UK-based fund house to run a similar fund.

More recently, in 2016, former SLI colleague Sebastian Mackay also joined the managers at Invesco Perpetual.

“We are joint fund managers so we have to agree on what is the best combination of investment ideas for the portfolio and to make it robust,” says Millar.

The philosophy and investment approach of the Invesco Perpetual Global Targeted Returns fund hasn’t changed through time at the UK asset management company, remaining tied to an unconstrained research agenda. There is no stockpicking process but a long-only global macro ideas set, Millar explains.

However, Millar says the absolute return fund has gone through some key changes in terms of macro ideas in recent times.

He says: “As markets move, some of the sources of ideas have changed. More recently we have been looking outside the traditional asset classes. We can use value and sector-based ideas to maintain diversification.”

While keeping the asset allocation flexible, the portfolio is based on a number of themes rather than stock-specific calls and has seen the recent addition of the Mexican peso and the Brazilian real while shorting the respective equity markets.

Millar says: “We are pairing off the currency in emerging markets and shorting the equity positions [for each market]. We did this in Mexico and Brazil with the aim of extracting the carry from the currencies while not being dependent on emerging markets overall.”

The Mexican peso has become much cheaper since the Trump-related equity sell-off and the recent interest rate hikes by the US Federal Reserve. Similarly, the Brazilian currency is cheaper than its equity market, which remains expensive among other emerging market countries.

Millar and his team are also long on France and short on Germany and Italy. The team believes the prospect for political changes in Europe remains high, despite France seeing a relative stability with the recent election of liberal and pro-European Emmanuel Macron.

Millar says the French idea is “more long-term value” and represents around 9 per cent of the portfolio exposure by region, the highest in Europe.

He says: “We are cautious in case there is another political offset in Europe, and if it turns out to be worse than at the moment then by having Italy on the other side of it, should the market fall being short [Italy] gives us some protection.”

The portfolio also has UK equity exposure of around 7 per cent, mainly accessed through Invesco Perpetual’s own funds. Only six of the 28 ideas in the portfolio have a portion of physical investments though.

Millar says: “We have UK equities ideas relying on the stock picking ideas from Invesco Perpetual funds, in particular the £1.1bn UK Growth fund and Mark Barnett’s Income fund. This gives us an additional source of potential returns.

“We have recently added a long sterling idea in the portfolio because of the possible appreciation, as advised by our research team. This is a good example of the interaction we have with other parts of Invesco globally,” says Millar.

Currently the fund is almost evenly split between equities and currencies, making up 31 per cent and 28 per cent respectively.

European equities have been the fund’s best performers over one year to the end of March, adding 183 basis points to the overall performance. This year, selective exposure to Asia, including countries such as India, offshore China and Hong Kong, improved fund performance the most in the first quarter, adding 40 basis points. However, Europe detracted 1 basis point from the fund’s performance in the first three months of the year.

Millar says: “We have been in a risk-on environment which has helped flows into the funds. However, in the first quarter especially currency but also credit and most of our interest rates ideas worked well for the fund.”

Indeed, interest rates and credit positions follow equities and currencies as the largest positions in the fund, making up 19 per cent and 8 per cent respectively.

Millar started his career as an actuary and landed his first job in 1989 at Scottish Widows Investment Partnership. In 1996 he became a bond fund manager at the Scottish firm and then moved to Standard Life Investments’ multi-asset team as investment director until he led the management of GARS.

The fund manager, while reflecting on the future volatility expectation, is adamant of the need for diversification and says he will continue to focus on alternative sources of returns for the portfolio.

Millar says: “I don’t have any preference on a specific market for us but it is important to have a broad spread of assets in order to maintain performance. We still expect there to be bouts of volatility in markets going forward. We are surprised volatility has been lower [than expected], maybe because monetary policy is still pretty accommodative across the world. However, the surprise is that we have seen that geopolitical volatility didn’t really translate into market volatility.”

In May, the Invesco Perpetual Global Targeted Returns fund hit the £10bn mark. Millar is not worried about the fund’s fast-growing size and hopes to continue to grow assets at the same pace. He says: “This is a milestone for the fund and as we manage liquid assets we can grow further.”

Over a three-year period, the fund has outperformed the IA Targeted Absolute Return sector returning 12.8 per cent against the sector’s 8.2 per cent over the same period.


1989 Qualifies as actuary

1996 Becomes a bond fund manager at Scottish Widows

2008-2012 Manages GARS at Standard Life Investments

2013 Launches the Invesco Perpetual Global Targeted Returns fund

The numbers

£10bn Size of the Global Targeted Returns fund in May

12.8% Returns over three years against 8.2 per cent of the IA Target Absolute Return sector

11% Allocation to Europe, the largest geographical portion of the fund

28 Investment ideas in the fund, 6 of which are physical assets