Share class hedging at Invesco
An explanation
This document is for Qualified Investors in Switzerland only and is not for
consumer use. Please do not redistribute.
Introduction
At Invesco, we offer a number of currency hedged
share classes for our funds. Hedged share classes
are designed for investors who want exposure to
assets denominated in foreign currencies without
the associated currency risk of the base currency of
the fund. They limit investors’ currency risk by
reducing the effect of exchange rate fluctuations
between the fund’s base currency and the currency
to which the investor wishes to be exposed. For
example, by investing in a US fund’s EUR-hedged
shares, a European investor would capture the
investment performance of the US equity market
without taking on the additional risk of movements
between euro and US dollar.
However, while the hedging process intends to
protect investors from substantial currency moves
between the fund’s base currency and the hedged
currencies, the hedge will never be perfect in
practice and may only reduce, not eliminate, the
investor’s exposure to exchange rate fluctuations.
Example: Performance of the Invesco US
Structured Equity Fund in base currency (USD)
versus performance of the EUR-hedged share class
versus performance in EUR (not hedged).
Returns (%) in Calendar
Year
Invesco US Structured Equity
Fund A
Invesco US Structured Equity
Fund A (Euro-hedged)
Invesco US Structured Equity
Fund A (return in EUR, not
hedged)
2013
2012
10.45
34.22
11.07
10.36
33.82
10.19
25.77
28.42
9.36
This illustration shows that hedged share class
investors (in this case EUR-hedged) can receive a
return closely correlated to the base currency (USD)
return. The unhedged return of the base currency
share class in EUR can differ quite significantly from
the base currency share class due to the unhedged
US dollar exposure. Such classes can provide a
higher or lower return depending on the currency
impact.
Considerations when investing in hedged share
classes

Hedged share classes allow investors to deal in
their preferred currency rather than the base
currency of the fund

Hedged share classes intend to protect
investors from substantial currency moves
between the base and hedged currencies

Hedged share classes typically deliver broadly
similar returns to the equivalent base currency
share class

The hedging process has no impact on the
investment management of the funds offering
hedged share classes because it is the net asset
value (NAV) of the relevant share class which is
hedged, not the underlying assets
250
200
2014
150
100
50
BUT
Invesco US Structured Equity Fund A

Hedged share classes do not provide returns
that exactly match those of the base currency
share class

Hedged share classes do not hedge against
active currency positions within a fund

Non-hedged share classes can profit from
currency movements, and investors in
Invesco US Structured Equity Fund A (Euro-hedged)
Invesco US Structured Equity Fund A (return in EUR,
not hedged)
For illustrative purposes only. Past performance is
not a guide to future returns.
Share class hedging at Invesco
An explanation
currency-hedged share classes may miss out on
additional gains in these circumstances

All gains/losses and expenses arising from
hedging transactions will be borne by the
hedged share class
How does the hedging programme work?
Invesco’s hedged share classes use NAV hedging to
provide a return broadly similar to the base
currency performance of funds with underlying
assets in one or multiple currencies. A NAV hedged
share class works by holding hedging instruments
whose performance is intended to offset the effect
of exchange rate movements. The process is as
follows:

Any new purchases of hedged shares are
converted into the fund’s base currency using
the spot rate at the valuation point

The resultant base currency exposure is then
hedged back to the relevant currency using
forward currency contracts

The gain or loss on the currency hedge is
reflected in the daily NAV calculation for the
relevant hedged share class and therefore in its
performance, but will be booked as an
unrealised profit or loss until the contract is
rolled, at which point the impact of the forward
is crystallised and a new forward currency
contract is put in place

The forward currency contract is rolled at least
on a monthly basis

The hedge cycle can vary depending on market
conditions: We monitor daily and adjust when
the hedge is outside an internally set
materiality band. During periods of extreme
volatility, forward positions may be rolled more
frequently. As a result, any profit or loss would
be crystallised and reinvested more rapidly than
would otherwise have been the case
perfect and differences can arise for several
reasons:

A difference in interest rates between the base
currency and the hedged share class currency:
this deviation may be positive or negative,
depending on prevailing rates.

Performance dilution from unrealised profit and
loss: the fact that all unrealised profit/loss on
the currency forward remains uninvested until
the hedge is rolled over can have the effect of
the hedged share class being temporarily overor underinvested in the base investment
portfolio

Transaction costs: these will detract slightly
from the overall return

Intra-day volatility of the value of the base
currency assets in relation to the existing hedge
as market value hedge adjustments can only be
placed after the fund’s valuation point

Although we typically look to hedge 100% of
the daily cash flows and the NAV, the hedge
may not always be at 100% to avoid
transaction costs for minor adjustments
Important information
This document is for Qualified Investors in Switzerland
only and is not for consumer use. Please do not
redistribute. Data as at 30.09.2015, unless otherwise
stated.
The value of investments and any income will fluctuate (this may
partly be the result of exchange-rate fluctuations) and investors
may not get back the full amount invested. For more information
please consult the current fund and share class specific Key
Investor Information Document (KIID) and for a complete set of
risks the current prospectus. The US Structured Equity Fund is
domiciled in Luxembourg. This document is by way of
information only and does not form part of any prospectus. The
statements in this document are no invitation to subscribe for
shares in a fund nor are they to be construed as an offer to buy
or sell any financial instruments.
How will the hedged share class perform?
Past performance is not a guide to future returns. Unless
otherwise indicated, the performance data shown does not take
into account the commissions and costs incurred on the issue
and redemption of units. Where Invesco has expressed views
and opinions, these may change.
Hedged share classes seek to offer foreign currency
investors a return reflecting the performance of the
base currency share class. However, no hedge is
Whilst great care has been taken to ensure that the information
contained herein is accurate, no responsibility can be accepted
for any errors, mistakes or omissions or for any action taken in
reliance thereon.
Share class hedging at Invesco
An explanation
Switzerland: This document is issued in Switzerland by Invesco
Asset Management (Schweiz) AG. Subscriptions of shares are
only accepted on the basis of the most up to date legal offering
documents. The legal offering documents (fund & share class
specific Key Investor Information Document, prospectus, annual
& semi-annual reports and articles) are available free of charge
at our website www.invescoeurope.com and in hardcopy and
local language from the representative, Invesco Asset
Management (Schweiz) AG, Talacker 34, CH-8001 Zurich. Paying
agent in Switzerland: BNP PARIBAS SECURITIES SERVICES,
Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich.