AIIEX: What Drove Its Sharpe Ratio Downwards?



The Invesco International Growth Fund’s composition

The Invesco International Growth Fund – Class A (AIIEX) has been in existence since April 1992. At the end of January 2016, the fund was managing assets worth $8.3 billion and these were spread across 69 holdings as of the end of January 2016.

Consumer discretionary stocks formed nearly a fourth of the fund’s assets and made up the single largest sector of investment as of the end of January. The financials and information technology sectors followed, together forming one-third of the portfolio. The fund was not invested in the telecom service or utilities sectors. 21% of the fund’s assets were invested in the United Kingdom, the primary country of investment.

UK-based Sky was the fund’s largest holding, forming 3.6% of the fund’s December 2015 assets. Teva Pharmaceutical Industries (TEVA), RELX Group (RELX), WPP (WPPGY), CGI Group (GIB), and Publicis Groupe (PUBGY) formed a combined 12.2% of the fund’s assets.

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Returns of the Invesco International Growth Fund

The Class A shares of the Invesco International Growth Fund (AIIEX) had an average year up until January 2016. From a purely NAV (net asset value) return standpoint, the AIIEX stood fifth in the aforementioned period and eighth for 2015 among the nine funds in this review.

Standard deviation

Standard deviation is used for assessing risks associated with an investment. Simply put, it measures the deviation of a series of returns from the average. A wide deviation reflects a high fluctuation in the returns, resulting in a higher risk, and vice versa.

For the one-year period ended January 2016, the standard deviation for the AIIEX stood at 13.9%. Meanwhile, the arithmetic average of the standard deviation of all funds in this review was 14.5%. Excluding the AIIEX, the average was 14.5%. Therefore, the returns of the fund were more volatile than the average return of the peer group.

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Sharpe ratio

For realized returns, the Sharpe ratio assesses the average return on a risk-free asset or security over total risk as represented by a standard deviation. The higher the Sharpe ratio, the better the risk-adjusted performance.

The Sharpe ratio for the AIIEX for the one-year period ended January 2016 stood at -0.46, whereas it was -0.1 for 2015. This makes it one of only two funds to have reported a negative ratio for 2015.

A note for investors

A higher volatility of returns was partly responsible for the fund’s poor Sharpe ratio, especially for 2015. January 2016 was actually much better for the fund than its peers and it saw much less downside. For investors wishing to invest in this category of mutual funds, more time and thought should be given before investing in this fund in 2016. Let’s move to the next fund in this review: the Artisan International Fund – Investor Class (ARTIX).


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