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Identifying Ideas For A Low-Growth, Low-Rate Environment

Summary Our strategy looks across asset classes, currencies, geographies and sectors to identify good long-term ideas wherever they may be. This piece highlights five themes that we believe will likely prevail over the next two to three years. In the shorter-term, we believe that 2016 could potentially bring with it some significant changes across financial markets. 2016 investment outlook: Multi-asset strategies By David Millar, Head of Multi Asset, Invesco Perpetual Divergence in economic growth and monetary policy around the world has led to an increasingly volatile market environment in 2015. Specifically, while the United States (U.S.) and the United Kingdom (U.K.) have been preparing to raise interest rates from rock-bottom levels, Europe and Japan have continued to employ quantitative easing measures. China also stepped up monetary easing policies during the year through several interest rate cuts and a surprise devaluation of its currency. What is important to know about our team’s investment process is that we take a two- to three-year view of the world, which helps us avoid some of the short-term noise in the markets, looking across asset classes, currencies, geographies and sectors to identify good long-term ideas 1 wherever they may be. Going forward, we believe the following themes will likely prevail over the next two to three years: Low, but positive, global economic growth We believe that structural economic growth will remain subdued on a global basis. However, regional differences could continue, with inventory and capital expenditure concerns acting as a potential drag on consumption-led U.S. growth, and the economic slowdown in China posing a potential risk to Europe’s cyclical recovery. Interest rates to remain low At the beginning of 2015, we acknowledged that interest rates could start to rise in the U.S. and the U.K., and that impacted our appetite for having duration in the portfolio. Given the modest economic outlook, we expect interest rates to remain low over the next few years even if rates do tentatively start to rise in the US and U.K. We believe the outstanding question is whether the monetary policies that are driving these changes will be effective in sustaining a healthy economic recovery. Low inflation to continue globally We expect low inflation to continue globally, exacerbated by ongoing competitive currency devaluation. We believe underlying inflation will remain low in the face of structural factors, such as debt overhang, and that implied inflation priced into forward interest rates will remain high. Select opportunities in risk assets We believe that select opportunities exist in risk assets, but current equity valuations must be navigated with care as earnings trends show differences between regions. Within fixed income, the search for yield appears to be distorting valuations, although U.S. corporate bonds look, in our view, more fairly priced. Higher levels of market volatility to persist Volatility has risen in 2015, but we believe that divergent economic policy globally, as well as non-market forces such as political interference, could underpin persistently higher levels of absolute volatility over the coming years. Given this two- to three-year outlook of the market, in the shorter-term we believe that 2016 could potentially bring with it some significant changes across financial markets. The beginning of a rate-tightening cycle could lead to a very different landscape for investing, as compared to the past few years which were defined by very loose monetary policy. This is important for a multi-asset portfolio like ours. For example, if interest rates rise, bonds may not provide the diversification 2 investors need. Another general theme, which extends through 2016 and beyond, is the use of different policy tools around the world. Ongoing competitive currency devaluation is a theme that may dominate across Asia in particular as economies fight for their share of global trade. In this environment, taking views on individual countries rather than broad-based regions makes sense as individual countries are responding to global economic pressures in very different ways, in our view. As policy and economic factors diverge across regions, this typically underpins higher asset class volatility than we have experienced over the past few years. Learn more about Invesco Global Targeted Returns Fund (MUTF: GLTAX ). Important information The opinions of the ideas expressed are those of Invesco Multi-Asset Team and are based on current market conditions which are subject to change without notice. These opinions may differ from those of other investment professionals. Diversification does not guarantee a profit or eliminate the risk of loss. Volatility measures the amount of fluctuation in the price of a security or portfolio. About risk There is a risk that the Federal Reserve Board (NYSE: FRB ) and central banks may raise the federal funds and equivalent foreign rates. This risk is heightened due to the potential “tapering” of the FRB’s quantitative easing program and other similar foreign central bank actions, which may expose fixed income investments to heightened volatility and reduced liquidity, particularly those with longer maturities. As a result, the value of the Fund’s investments and share price may decline. Changes in central bank policies could also increase shareholder redemptions, which may increase portfolio turnover and fund transaction costs. 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. These risks are greater for the Fund than most other funds because its investment strategy is implemented primarily through derivatives rather than direct investments in more traditional securities. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues. The Fund is 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. Leverage created from borrowing or certain types of transactions or instruments may impair liquidity, cause positions to be liquidated at an unfavorable time, lose more than the amount invested, or increase volatility. The Fund is non-diversified and may experience greater volatility than a more diversified investment. 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. The Fund may invest in derivatives either directly or, in certain instances, indirectly through Invesco Cayman Commodity Fund VII Ltd., a wholly owned subsidiary of the Fund organized under the laws of the Cayman Islands (Subsidiary). 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. 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. Debt securities are affected by changing interest rates and changes in their effective maturities and credit quality. 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 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. Before investing, carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the products, visit invesco.com/fundprospectus for a prospectus/summary prospectus. The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE All data provided by Invesco unless otherwise noted. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Each entity is an indirect, wholly owned subsidiary of Invesco Ltd. ©2015 Invesco Ltd. All rights reserved. Identifying ideas for a low-growth, low-rate environment by Invesco Blog

New Factor-Based Emerging Market ETF From IShares

With the Fed on the verge of raising rates after almost a decade, emerging markets (EM) are presently running high risks. Investors are hurriedly dumping emerging market products on apprehensions of the end of the cheap-money era in the U.S. Higher interest rates in the U.S. would fade the appeal for high-yield lure for the emerging market equities. Plus, emerging economies’ growth is slowing with the biggest market, China, suffering from a long-drawn-out slowdown. The economies are mostly commodity heavy and are thus extremely susceptible to the prolonged commodity market slump. All these make fund issuers very careful and selective when it comes to launching a new EM ETF. In that vein, iShares recently rolled out the iShares FactorSelect MSCI Emerging ETF (BATS: EMGF ) . Let’s elaborate the product. EMGF in Focus The fund seeks to offer exposure to the developing world via large and mid-cap companies. To screen stocks, the underlying index targets some key criteria including ‘inexpensive stocks, financially healthy firms, trending stocks and relatively low market cap companies’ per the issuer . Quality of the stock is measured by ‘higher return on equity, earnings consistency and lower debt to equity ratio’ and cheaper valuations are determined by lower P/E and P/B ratios, per iShares. This focus results in a portfolio holding a basket of 156 well-diversified companies. India ETF, the iShares MSCI India ETF (BATS: INDA ) (7.18%), KT&G Corp. ( OTC:KTCIF ) (2.46%) and CITIC Ltd. ( OTCPK:CTPCY ) (2.37%) are the top three holdings. However, as far as sector allocation is concerned, the fund has a tilt towards Financials, which occupies about 23.67% of weight followed by Information Technology (15.45%) and Consumer Discretionary (12.78%). Two other sectors, Consumer Staples and Industrials also have a double-digit weight. Considering country-wise allocation, China takes the top spot having 29.75% allocation while South Korea (15.54%), South Africa (12.06%) and Taiwan (10.07%) also have double-digit exposure. The fund charges 70 basis points in fees. How Does it Fit in a Portfolio? For investors still having faith in the emerging market growth story, this fund can be a good choice. As such, smart-beta investing seems necessary for emerging markets at this point of time when the U.S. economy is about to see the end of the easy-money policy. Emerging markets across the board had a great time in previous years on incessant inflows from cheap money and the stocks surged. But as soon as the policy tightening takes place in the U.S., only high quality picks will likely gain investor attention. Moreover, the fund is well diversified as far as individual stocks are concerned. However, investors should note that the product is a bit concentrated from both a sector and country perspective, though expenses are reasonable. ETF Competition The emerging market equities space is primarily dominated by two large players – the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) – managing an asset base of $33.8 billion and $20.8 billion, respectively. However, both of them are market-cap oriented ETFs and thus do not pose a threat to the newbie. The emerging market funds that could act as competitors to the newly launched iShares’ ETF are the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEARCA: GEM ) , the PowerShares FTSE RAFI Emerging Markets Portfolio ETF (NYSEARCA: PXH ) , the FlexShares Morningstar Emerging Markets Factor Tilt Index ETF (NYSEARCA: TLTE ) , the PowerShares DWA Emerging Markets Momentum Portfolio ETF (NYSEARCA: PIE ) and the iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSEARCA: EEMV ) . All these are running on smart-beta indexing or some unique approach rather than just revolving around market capitalization. Original Post

The NASDAQ 100: Pressured For All The Wrong Reasons, Buy QQQ

The NASDAQ 100 Index has been pressured of late along with the broader stock market. The catalysts have been the impending Fed action, lower energy prices and concern about high-yield debt and emerging markets. However, these catalysts are hardly direct risks for the 100 largest companies found within the NASDAQ 100 and QQQ. As a result, I see this weakness as a special opportunity to purchase these stocks at unwarranted discount via acquisition of QQQ. Fear has spread across the market. Major business media has raised the specter of a Fed rate hike that could stir trouble for emerging markets and high-yield debt. While it’s true that higher interest rates pressure borrowers on the margins, they should not immediately bankrupt them all. That is unless panic is pushed to the populace and investors immediately demand even greater yield for the debt that helps to sustain those fringe borrowers. Nevertheless, I see an opportunity here as the PowerShares QQQ Trust ETF ( NASDAQ: QQQ ) is being pressured for all the wrong reasons. The NASDAQ 100 has already been discounted by this issue and concern about lower energy prices, despite a lack of direct exposure to either. And there is a chance the NASDAQ 100 could sink further on these concerns this week. I would see any further decline as a very special opportunity, which I expect smart money would pounce upon, driving the QQQ to bounce higher not long thereafter. Indeed, the move higher may already be underway. Thus, I suggest using this wrongfully placed weakness as an opportunity to acquire the top NASDAQ stocks at discount by using QQQ. 1-Month Chart of QQQ at Seeking Alpha You can see in this 1-month chart of QQQ that the NASDAQ 100 Index has been under extraordinary pressure of late. The cause has been the same for all stocks, as evidenced by the moves of the SPDR S&P 500 Trust ETF (NYSE: SPY ) and the SPDR Dow Jones Industrial Average ETF (NYSE: DIA ). First, it is important to note the recent impact of lower energy prices. As America has charged toward energy independence, the energy sector has become a more important driver of American GDP. Thus, as energy prices have declined steeply and swiftly, the economies of the South and Midwest have been impacted. Energy stocks have been impacted as well, as energy producers and suppliers see smaller profit margins and are pressured to reduce capital spending. Some may be coming under financial stress as prices have fallen even further. But the NASDAQ 100 and our proxy for it, QQQ, are hardly exposed. Therefore this macro factor pressuring all stocks opens an opportunity to buy QQQ at misplaced discount. Looking to the factor of high-yield and emerging market exposure, the companies within the NASDAQ 100 are the 100 largest stocks mostly in the technology sector and including biotechnology. The largest of all firms are not usually fringe borrowers, and companies that fall out of economic favor tend to be replaced within the large stock market indexes composed of the blue chips before long. They are not borrowers on the fringe, and so the high-yield issue should not affect them. In fact, these larger companies may benefit from the failures and distressed asset sales of others as they gain market share and acquire strategic assets on the cheap. QQQ’s Top 10 Holdings % of Assets as of October 30 Apple (NASDAQ: AAPL ) 12.83% Microsoft (NASDAQ: MSFT ) 7.92 Amazon.com (NASDAQ: AMZN ) 5.51 Alphabet (NASDAQ: GOOG ) 4.60 Facebook (NASDAQ: FB ) 4.34 Alphabet (NASDAQ: GOOGL ) 4.02 Intel (NASDAQ: INTC ) 3.03 Gilead Sciences (NASDAQ: GILD ) 2.99 Cisco Systems (NASDAQ: CSCO ) 2.76 Comcast Corporation (NASDAQ: CMCSA ) 2.49 The top 10 holdings of QQQ are a who’s who of American technology, and also include a major biotechnology firm and e-commerce retailer. These are not companies starving for capital or finding it hard to come by. Thus, a quarter point rise in the benchmark interest rate should not burden them, nor should a full point increase over the course of the next year, should that result. Thus, as QQQ has come down, if these individual stocks have also fallen and are individually sporting strong alpha drivers, they should likely be purchased as well. The point is that we must study the details when macro drivers impact the broad stock market, because these broad moves in equities can open up opportunities in specific sectors of the market and in specific stocks. In this case, I suggest investors can benefit by taking stakes in the high-technology behemoths of America via QQQ. The security reflects a misplaced discounting by the drivers of fear and concern about oil prices, high-yield debt and emerging market risk. I cover the market and sectors of it regularly, along with other topics, and invite interested parties to follow my column here at Seeking Alpha .