Several concerns mute this firm's stewardship profile.
Morningstar recently issued a new Stewardship Grade for Invesco. The firm's overall grade--which considers corporate culture, fund board quality, fund manager incentives, fees, and regulatory history--is a C. What follows is Morningstar's analysis of the firm's corporate culture. This text, as well as analytical text on the other four Stewardship Grade criteria, is available to subscribers of Morningstar's software for advisors and institutions: Morningstar Principia®, Morningstar Advisor Workstation(SM), Morningstar Office(SM), and Morningstar Direct(SM).
Like many modern asset managers, Invesco IVZ has both a complicated lineage and a set of cultural strengths and weaknesses. Many signs indicate the firm is increasingly focused on putting investors first, but the unknown effects of ongoing changes keep its corporate culture grade from standing above industry norms.
While Invesco can trace its roots back much further, its current form was created by the 1997 merger of Invesco and AIM, two asset managers founded in the 1970s. The firm continued to grow by acquisition, expanding its global footprint by purchasing Trimark in Canada and Perpetual in the United Kingdom in 2000. In the United States, the tech bubble's burst in 2000 spurred massive redemptions across many of the firm's aggressive momentum-based strategies. The firm further stumbled when it was implicated in 2003's market-timing scandal.
When CEO Marty Flanagan took the reins in 2005, the firm was still reeling from such missteps, and his actions since then have inspired some confidence that he could be able to right the ship. A previous co-president at Franklin Templeton, Flanagan and his Invesco executive team have improved the firm's funds and their performance. Importantly, the investment teams are communicating better globally, and the funds' board of directors has more support.
Invesco has continued to expand under Flanagan's watch. In addition to a number of other purchases, two large transactions in recent years created major transformations for the firm. The first was the acquisition of PowerShares in 2006. PowerShares was a pioneer in the exchange-traded fund marketplace, most well-known for its QQQ QQQ fund but also for its plethora of specialty-niche ETFs. It provided Invesco a strong entry into the rapidly growing ETF business. Rather than compete with other large players offering core portfolio holdings, Invesco has focused its ETF offerings as more niche options over time, launching funds like PowerShares S&P 500 Low Volatility SPLV and PowerShares S&P 500 High BetaSPHB. But unlike PowerShares in its early days, Invesco has adopted a more robust vetting process prior to product launches by putting new ETF ideas through the same development process the firm uses for its open-end funds. As a result, the pace of ETF launches has come down, although the firm has reached out to some rather-esoteric areas such as multistrategy alternatives and variable-rate preferred stock.
While the change allowed Invesco to diversify its revenue stream and continue to be a player in the popular ETF market, QQQ remains the firm's largest ETF by a wide margin; the ETF represented 85% of PowerShares' assets under management when the acquisition was announced in January 2006, although it has come down to 43% as of July 2014. PowerShares Senior Loan Portfolio BKLN, the first ETF to offer exposure to bank loans, has also attracted strong inflows since its 2011 inception, especially as concerns of rising interest rates have driven investors to the bank-loan sector. Overall, the PowerShares lineup now represents roughly one third of the firm's combined U.S. open-end and ETF assets.
Invesco's 2010 purchase of a suite of mutual funds from Van Kampen strengthened the firm's open-end mutual fund lineup. The merger provided access to a strong suite of value-style equity and municipal-bond funds, two areas where Invesco historically had weak product offerings. Invesco did a fine job integrating the funds into its lineup. While manager changes and fund mergers can be disruptive to an organization and its fundholders, Invesco was swift and efficient about it and also communicated clearly with employees and investors, saying which funds--and management teams--would stay in place and which would not. Overall, the firm's current lineup is better balanced and easier for investors to navigate as a result of the mergers. The acquisition was contingent on the fund boards at Invesco and Van Kampen ironing out details of their combined structure, thereby avoiding hassles and possible distractions after the deal's close.
Among Invesco's investment teams, there are pockets of strength, but several recent events suggest the firm is not using its resources effectively. After a failed attempt to hire a firmwide chief investment officer in 2009, Invesco established a co-CIO structure. Four independent equity CIOs have free rein to build out their teams as they see fit. While that autonomy allows each CIO to hone a specialty, it also leaves open questions as to whether each team can gain enough scale to make its process viable.