1. The document analyzes Invesco (IVZ), a large asset management company. It details IVZ's business segments, competitors, financial performance, and management. 2. The author recommends selling IVZ shares. While the asset management industry is growing, IVZ has been underperforming peers and losing assets under management. Competitors also offer lower fee products that could draw more customers. 3. Key risks to IVZ include its reliance on fees which make it vulnerable to macroeconomic shifts, high concentration in one ETF, and competitors lowering prices. However, rising interest rates and the growing ETF industry may provide opportunities.

1. 1
KSU Student Managed Investment Fund LLC.
Eli Hogan
eli.hogan20@gmail.com
Analyst- FinancialSector
Michael Van Zanten
Michael.vanzanten92@gmail.com
Analyst- FinancialSector
March 3, 2016
Current Holdings Report
Invesco (IVZ)
Rating: Sell
Our Position:
112.6188 shares; cost basis $20.20 per share
Company Profile
Invesco Ltd. (Market Cap 11.6B) is a large asset
management company headquartered in Atlanta,
Georgia. It has offices in twenty countries, clients in
over 100, and roughly 775 billion dollars under
management. Over 6000 administrative staff
support approximately 750 Invesco investment
advisors. Its Powershares Exchange Traded Fund
(ETF) brand is the fifth largest in the world, totaling
139.1 billion dollars at the end of 2015. Invesco also
provides QQQ, a fund tracking the Nasdaq that has
the sixth highest assets under management (AUM) in the ETF sphere.
Virtually all of Invesco’s revenue comes from asset management fees. These fees are
derived from two categories of assets: actively managed funds (mutual funds) and
passively managed funds (ETFs).
Actively Managed Funds
Invesco offers mutual funds focused on almost every asset class or region, with AUM
totaling 636.5 billion USD at the end of 2015. This represents 82% of Invesco’s total AUM.
While some specialty funds charge expense ratios as high as 9.11%, average expense ratios
across all funds hover around one percent.
IVZ Industry
Average
Current
Price
$27.10 -
Target
Range
$33.93-
$46.60
-
Market Cap $11.6B -
P/E 12.03 15.9
ROA 4.2% 2.31%
Beta 1.93 1.5
Dividend
Yield
3.87% 2.4%
Price/Book 1.4 1.73

2. 2
Passively Managed Funds
Invesco’s Powershares brand is a leader in the emerging ETF space, with 139.1 billion USD
AUM as of 2016. Invesco issues QQQ, an ETF tracking the Nasdaq 100 Index. It usually
consists of every company within the index excluding financial services firms, but is heavily
weighted towards information technology companies. As mentioned, it is one of the largest
ETFs on the market, with 35 billion USD AUM. It is also the ninth most heavily traded ETF
in existence, changing hands an average of 44 million times per day.
Past Performance
In 2015, IVZ massively underperformed both the S&P 500 and the Dow Jones Select
Investment Services Index, losing 17%.
Over the past five years, IVZ has failed to capture the gains of both the aforementioned
indexes.

3. 3
Management
Upper management has been almost entirely stable, with very little turnover in the past
several years. Normally, this should be a positive attribute for shareholders, as instability in
upper management contributes to instability and volatility in security prices. However, in
light of Invesco’s totally mediocre performance, we do not view this in a positive light.
Martin L. Flanagan (President and Chief Executive Officer)- Flanagan has served in his
position since August 2005. Before joining Invesco, he was with Franklin Investments. At
Franklin, he worked in many roles within the firm, holding the positions of senior vice
president, chief financial officer, chief executive officer, and president. He is a CFA
charterholder and a CPA.
Ben F. Johnson (Chairperson and Non Executive Director)- Johnson has been a director
since January 2009 and Chairperson since May 2014. Before joining the company, he was a
managing partner at Alston & Bird LLP.
Joseph R. Canion (Non Executive Director)- Canion has been the non-executive director
of Invesco since 1997. He has a history of innovation and asset building, co founding
Compaq in 1982 and serving as CEO until 1991.
C. Robert Henrikson (Non Executive Director)- Henrikson is extremely experienced,
serving as CEO of Metlife from 2006 to 2011. He has a reputation as an expert on
retirement related finance, such as ERISA and retirement plan investment management.
Denis Kessler (Non Executive Director)- Kessler has been with Invesco since 2002. He
hails from France and is the former vice president of the French Business Confederation.
He is a member of the International Insurance Society’s Insurance Hall of Fame.
Edward P. Lawrence (Non Executive Director)- Lawrence has been on the board of
directors since 2004. He is a former partner at Boston Law Firm Ropes & Gray.
Sir Nigel Shenwald (Non Executive Director)- Shenwald is the newest member of the
board of directors, working with Invesco since 2015. Before Invesco, he served as the
British Ambassador to the United States. He has served as a special advisor to Universal
Music Group and is a Fellow at Oxford.
Phoebe Wood (Non Executive Director)- Wood has been with Invesco for six years now
and is the Chairperson of the Audit Committee. Before coming to Invesco, she worked at
Brown-Forman, Propel, and Atlantic-Richfield Company in a variety of positions, including
vice president and chief financial officer.

4. 4
Recent News
Invesco Posts Earnings Miss- IVZ reported earnings on January 28, earning $0.58 per
share and missing consensus estimates of $0.60 per share. By contrast, direct competitors
Schwab and T. Rowe Price, who reported earnings the same week, met and beat analysts’
expectations, respectively.
Invesco AUM Falls 4.5% in January-As a result of unfavorable market conditions and net
long-term outflows, AUM fell precipitously. QQQ also saw massive outflows, highlighting a
vulnerability in IVZ’s capital structure.
Invesco Acquires Robo-Advisor Jemstep- Invesco is yet another asset management firm
to begin offering Robo-Advisor services, following after Vanguard, Schwab, and Blackrock.
These services have been strong profit-generators for other firms.
Schwab lowers ETF expense ratios, including lowering expenses on broad market
fund SCHB to an industry low .03%. This is in contrast to the .25-.75% expense ratios
Invesco charges on its large-cap blend funds. Invesco looks to be a loser in the ETF price
wars.
Competitor Comparison
Invesco directly competes for market share with other asset management companies.
Market
Cap
(Billions)
2015
Return
P/E PEG P/B 2015 AUM
Growth
Invesco 11.6 (16.96%) 12.03 1.07 1.4 (2.01%)
Blackrock 52.94 (3.74%) 15.86 1.41 1.9 (.01%)
Schwab 34.2 7.86% 24.72 1.02 2.8 2%
State
Street
22.39 (16.94%) 12.38 1.46 1.2 (8.1%)
T. Rowe
Price
17.47 (18.01%) 14.95 1.56 3.6 5.9%
In 2015, AUM growth was better only than that of State Street, while stock performance
lead only T. Rowe Price. Even worse, as Powershares AUM fell by 2.2 billion, ETF industry
leader Blackrock increased AUM in its iShares brand, despite a very small drop in total
AUM. We believe this indicates Blackrock is, at the moment, taking better advantage of the
explosive growth of the ETF industry.

5. 5
SWOT
Strengths
Well-diversified geographically- roughly half of
revenues come from outside US, providing a small
hedge against macroeconomic events.
Rising demand- as markets become more volatile, the
average investor recognizes the need for professional
investment advice and seeks out advisement services
such as Invesco.
Weaknesses
Macroeconomic shifts- Revenue is almost entirely
dependent on asset management fees, leaving
Invesco extremely vulnerable to major
macroeconomic shifts. Per the 2015 10-K- “For any
period in which revenues decline, our income and
operating margin likely would decline by a greater
proportion because a majority of expenses remain
fixed.”
Underdiversification- Over a quarter of passively
managed AUM is concentrated in tech fund QQQ. If a
competitor introduced a similar fund with a lower
expense ratio, it could threaten IVZ’s growth.
Opportunities
Interest rate hikes- interest rate hikes could boost
profitability due to large cash balances on books and
increased loan profitability.
ETF industry growth- the ETF industry has grown
exponentially over the past twenty years and still has
room to expand. Invesco is in a prime position to take
advantage with its Powershares brand.
Threats
Presidential election- Some Democrats, most
prominently presidential candidate Bernie Sanders,
have floated the idea of a “speculation tax” on every
stock trade made in America in order to fund higher
education. This would damage Invesco’s bottom line.
Other companies- some of IVZ’s direct competitors
seem to be much more willing to lower ETF expense
ratios to attract new capital. As such, IVZ ETF AUM
fell in 2015, despite the ETF industry growing as a
whole
Valuation
We used the P/E multiple method to
analyze IVZ’s target range. Using this
method, we determined a target
price of $33.93-$46.60. Taken at face
value, this represents a large
amount of upside, even in the face of
a bear market. However, we highly
recommend fund management take
this range with a grain of salt. It is
based on forward earning
projections, and IVZ has missed
earnings expectations the last two
quarters.

6. 6
Dividend Analysis
Invesco pays an extremely high dividend for a financial stock, hovering around 4% for the
past few weeks. Since our first purchase of Invesco on May 7, 2010, we have collected
$669.51 of dividends. Invesco has raised their dividend consistently, increasing the payout
each of the last seven years. The payout ratio is .45, which looks to be sustainable, at least
in the short term.
Investment Thesis
We rate IVZ a sell. We recognize the potential for large amounts of upside due to the
growth of the ETF industry and the natural increase in profitability in the financial sector
during rising interest rate environments. Additionally, net income is expected to rise in the
coming years. However, we are concerned that during a period in which the ETF industry
posted massive gains in overall AUM, Invesco’s AUM dropped by several billion dollars.
Additionally, other firms, such as Schwab (SCHW) and Blackrock (BLK), offer much lower
ETF expense ratios. As mentioned, Schwab recently lowered expenses on their in house
large cap blend ETF, SCHB. It now possesses by far the lowest expense ratio in the industry,
.03%. We are concerned that this could draw customers away from some of Powershares’
large cap ETF offerings during a period that should be marked by growth. Additionally,
Schwab grew earnings by 29% last year, compared to a 1.6% drop for Invesco. For these
reasons, we believe there are other, more profitable opportunities within the asset
management industry. We do not believe IVZ is poised to crash or lose value. It is, as
mentioned, undervalued according to our analysis. We simply believe there are much more
attractive investments the SMIF can make with capital currently allocated to IVZ.
In the current volatile market, collecting a reliable 4% dividend is more than palatable to
us. Therefore, we recommend a liquidation of approximately half our stake in IVZ, lowering
our position to 55 shares while using the proceeds from the sale to purchase an asset
management company with higher growth potential. This will maintain IVZ’s contribution
to the fund’s dividend income stream while allowing the fund to realize higher long-term
gains from its financial sector holdings. Previously, Blackrock was pitched as a potential
buy to fund management. After preliminary research, we also consider Schwab to have high
growth potential, and to be a much safer investment due to their lower reliance on asset
management fees as a revenue source. We recommend SMIF management explore these
options immediately.
Sources
Bloomberg Terminal
Dividend.com
Google Finance
Invesco 10-K
Investopedia
Morningstar

7. 7
Nasdaq.com
Schwab 10-K
Yahoo Finance
Zacks.com