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Rating:Three Things to Know From Invesco's Q2 2013 Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, August 01, 2013

Three Things to Know From Invesco's Q2 2013 Earnings

News summary by MFWire's editors

Invesco's [profile] second quarter profit rose 32 percent with net income moving up to $202 million, or $0.45 a share, from $153.9 million, or $0.34 a share a year ago.

Adjusted earnings of $0.50 a share did not meet expectations of $0.51 a share, Bloomberg'sChristopher Condon writes. Invesco's AUM fell 0.3 percent to $705 billion as of June 30, but that decline could reflect net market losses and foreign exchange rate changes, Zacks writes.

Here are three takeways from Invesco's earnings call transcript transcript posted on Seeking Alpha.

POINT 1: Invesco is seeing investor interest in long-term active equities and alternative fixed-income.

POINT 2: Invesco Risk-Balanced Allocation Fund (IBRA) opened up distribution in the U.S.

POINT 3: Expect management fees to move higher.

POINT 1: Invesco is seeing investor interest in long-term active equities and alternative fixed-income.

William R. Katz of Citigroup posed a question to Loren Starr, CFO and senior vice president and senior managing director of Invesco.
Katz: I was wondering if you could maybe go another layer or 2 in the July snapback of flows and maybe answer it by either geography, where you're seeing the recovery and/or by maybe type of product, active versus passive.

Sure, Bill. I think in terms of interest for the snapback in July, we're definitely seeing interest in equities, long-term active equities that's featuring nicely, positive flows showing up. We're also seeing continued interest in our traditional PowerShares product. So that's been a theme that continues to ride. Good strength in Asia Pac and Continental Europe, in particular, are really doing very well for us, not that U.S. is not. But I think the U.S. featured even more strongly in the first quarter, whereas now I think the other regions are actually sort of showing equal strengths. So the interest in the products -- and we have fixed income as well, alternative fixed income, continue to be a very interesting product, real estate. So it's a lot of the things we've talked about. The only thing that sort of different, I'd say, is that instead of asset allocation being the #1 kind of driver of flows in July, that has really been sort of more equity-oriented products and some of the alternative fixed income that has shown up as the greatest demand.
POINT 2: Invesco Risk-Balanced Allocation Fund (IBRA) opened up distribution in the U.S.

Kenneth B. Worthington of J.P. Morgan Chase asked Marty Flanagan, CEO, president and executive director of Invesco, whether or not IBRA has expanded distribution relationships or opened new ones.
Worthington: First, I'd like to ask about the halo effect around IBRA. And maybe to what extent has success at IBRA -- or has success at IBRA opened up new distribution or expanded existing distribution relationships? And has it actually allowed you to sell other products that you might not have sold otherwise?

Flanagan: It's a good question. And I think as we've talked in the past, maybe the U.S. retail channel, in particular, because if you go back to handful of years now, as we've said, the Invesco brand was relatively new into the retail channel. And so having something successful creates absolute awareness more broadly across the capabilities. And that coupled with having the capabilities sort of performing well, I think you could clearly make the argument that that has been a very powerful thing in particular. That might be less so in other regions of the world where we've been Invesco and has had a good number of years of success. But it is something I would not discount. I think you're right.
POINT 3: Expect management fees to move higher.

Brennan Hawken of UBS Investment Bank, posed a question to Loren Starr, CFO and senior vice president and senior managing director of Invesco.
Hawken: So, just generally speaking, given the dynamics you guys laid out in the quarter, with weakness in June and average AUM being higher than beginning and ending AUM, the fact that you have some passive drive in the flows. My assumption is just we should see some downward pressure on the management fee rate here going forward, all else being equal. I mean, is that right or should I be thinking about it in a different way?

Starr: Yes. I think you're probably off a little bit on that one. So one of the things we're seeing is that the passive products -- I mean, their fee rate has been growing, right? Because as we've seen, like the bank loan product which has done so well, I mean, that's at 65 or 70 basis points fee. So that has really been helpful in terms of driving up the fee rate. In terms of the mix of flows coming in from Continental Europe, some from Asia now that we've got more balance -- I mean, we're actually -- the products outside of the U.S. tend to have higher fees than ones in the U.S., and so if we're seeing sort of Asia and Continental Europe and U.K. sort of coming back more strongly, that's going to be helpful too.

And then, finally -- I mean, as people, and we're hoping this is the case, sort of have more of an appetite for risk and risk-oriented products -- I mean, all those risk-oriented products are going to have a higher fee than sort of the stable value of money market type of products that can grow but definitely don't do much for the fee rate. So we would expect, and it is in our thinking, that we'll continue to see the effective fee rate grow. It did grow some from the second quarter to the first quarter by about 1/2 of a basis point in terms of the core management fee. And, again, we would expect to see continued slow improvement over time. We don't want to give you the wrong idea that it's going to pop up 1/2 a basis point every single quarter, but I mean it could slowly grow over the course of 2013.
See the transcript of Invesco's earnings call and the earnings transcript for more on how Invesco is doing.  

Edited by: Casey Quinlan

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