Transcript Slide 1

Important Information
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literature for public use.
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investing.
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Important Information
The views and opinions expressed are those of the speaker and are subject to change
based on factors such as market and economic conditions. The author’s views and
opinions are not necessarily those of Invesco Aim and are not guaranteed or warranted
by Invesco Aim. These views and opinions are not an offer to buy a particular security
and should not be relied upon as investment advice. Past performance cannot
guarantee comparable future results.
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Important Information
Performance quoted is past performance and cannot guarantee comparable future results; current
performance may be higher or lower.
Results shown assume the reinvestment of dividends.
An investment cannot be made directly in an index.
Investments with higher return potential carry greater risk for loss.
Investing in small companies involves greater risks not associated with investing in more established
companies, such as business risk, significant stock price fluctuations and illiquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic
upheaval, the relative lack of information about these companies, relatively low market liquidity and the
potential lack of strict financial and accounting controls and standards.
Investing in emerging markets involves greater risk than investing in more established markets such as
risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates,
adverse political developments and lack of timely information.
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Important Information
Diversification and asset allocation do not assure profit or eliminate the risk of loss.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
Government securities, such as U.S. Treasury bills, notes and bonds offer a high degree of safety and
they guarantee the timely payment of principal and interest if held to maturity.
U.S. T-bills are short-term securities with maturities of one year or less.
Long-term government bonds used in this illustration have a maturity of approximately 20 years.
The Consumer Price Index (CPI) is a measure of change in consumer prices, as determined by the
U.S. Bureau of Labor Statistics.
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Consumer Confidence — So Bad It Might Be Good
Dow Jones Industrial Average
Consumer Confidence
Plunges
have often
coincided
with market
bottoms.
Source: Copyright 2008© S1060A. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 31, 2008
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Record Cash Stash
“Stock investors lose
faith, pull out record
amounts.”
-The Wall Street Journal,
Dec. 22, 2008
Money Market
Assets
Compared to
the Wilshire
5000
Source: Copyright 2008© S423A. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 31, 2008
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Stock Market Volatility
Volatility equals risk
S&P 500 Index
S&P 500 Volatility Index
100-day average of absolute change in S&P 500 Index
Because
stocks are
volatile they
have
historically
delivered an
“equity risk
premium.”
Volatility has
spiked from
recent lows,
shaking
investors out
of stocks.
Source: Copyright 2009© S0237. Ned Davis Research, Inc. All rights reserved. Data as of Jan. 30, 2009
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Taxable Bond Yield Spreads Versus U.S. Treasury Bonds
U.S.
Government
Agency Bonds
MortgageBacked
Securities
InvestmentGrade
Corporate
Bonds
High-Yield
Bonds
Source: Copyright 2009© B0384. Ned Davis Research, Inc. All rights reserved. Data as of Jan. 29, 2009
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Municipal Bond Yields Versus U.S. Agency Yields
Municipal Bond Yields as a Percent of Agency Yields
Municipal
bond yields
are still at
historically
high
premiums
versus U.S.
agency yields.
Source: Copyright 2009© B471. Ned Davis Research, Inc. All rights reserved. Data as of Jan. 29, 2009
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Stocks Have Bottomed Mid Recession
10000
1000
S&P 500
100
Clear bands indicate recession.
10
Nov-07
Nov-08
Nov-05
Nov-03
Nov-01
Nov-99
Nov-97
Nov-95
Nov-93
Nov-91
Nov-89
Nov-87
Nov-85
Nov-83
Nov-81
Nov-79
Nov-77
Nov-75
Nov-73
Nov-71
Nov-69
Nov-67
Nov-65
Nov-63
Nov-61
Sources: Standard & Poor’s, National Bureau of Economic Research, data as of Nov. 30, 2008
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Stocks Have Bottomed Mid Recession
Recessions have lasted a
median of 10 months.
Source: Copyright 2008© S01724. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 18, 2008
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The Economy
“I need some short-term stimulus.”
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Gross Domestic Product Growth — Actual and Forecast
Gross Domestic Product (A)
January 2009 Consensus GDP Forecast (E)
9
Q/Q % Change (annualized)
7
5
2.8
3
2.0
1.2
1
-1
-0.8
-0.5
Key Recovery Drivers: Homebuilding, Business Investment in Capital Expenditures and
Inventories and Consumer Spending on Durables (Autos)
-3
Stimuli: Plunge in Energy, Lower Mortgage Rates and Fiscal Stimulus Package
-3.8
-3.3
-5
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2009-III
2009-I
2008-III
2008-I
2007-III
2007-I
2006-III
2006-I
2005-III
2005-I
2004-III
2004-I
2003-III
2003-I
2002-III
2002-I
2001-III
2001-I
2000-III
2000-I
1999-III
1999-I
1998-III
1998-I
1997-III
1997-I
Sources: Bureau of Economic Analysis as of Jan. 30, 2009, Wall Street Journal, Jan. 9-12, 2009
Cyclical Versus Steady Growth Components of Gross Domestic Product
3,500
12,000
Consumer Durables + Business Fixed Investment + Residential
Investment (left scale)
3,000
10,000
Other Components of GDP (right scale)
$ Billions
2,500
20% of
GDP
8,000
80% of
GDP
2,000
6,000
1,500
4,000
1,000
2,000
500
0
0
2008Q1
2006Q1
2004Q1
2002Q1
2000Q1
1998Q1
1996Q1
1994Q1
1992Q1
1990Q1
1988Q1
1986Q1
1984Q1
1982Q1
1980Q1
1978Q1
1976Q1
1974Q1
1972Q1
1970Q1
1968Q1
1966Q1
1964Q1
1962Q1
1960Q1
Source: Bureau of Economic Analysis, data as of Jan. 30, 2009
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Housing Starts Outlook — Actual and Forecast
1,900
1,800
1,700
Annual Growth in Number of Households
1,600
(actual and estimated)
1,500
1,400
1,300
1,200
1,100
Housing Starts (estimated)
1,000
900
Housing Starts (actual)
800
700
500
600
Q3 10 (E)
Q1 10 (E)
Q3 09 (E)
Q1 09 (E)
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Sources: U.S. Census Bureau. December data released Jan. 22, 2009. Mortgage Bankers Association’s housing starts forecast dated Jan.
12, 2009. Joint Center for Housing Studies, Harvard University, March 2006
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Housing Outlook — Affordability
Housing
affordability
has
recovered to
record highs
with the drop
in home
prices and
mortgage
rates.
Source: Copyright 2009© E876D. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 31, 2008.
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Vehicle Sales Outlook
25
Total Cars and
Light Trucks
New Unit Sales SAAR (millions)
20
New vehicle
sales have
sunk below
last year’s
estimated
scrappage.1
15
Light Trucks
10
Cars
5
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
0
1 RL Polk and Co. estimates a 2007 scrappage rate of 5.2% applied to 244 million total stock of vehicles (U.S. Department of
Transportation data).
Source: Bureau of Economic Analysis
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Consumer Spending Versus Household Net Worth
How significant is the wealth effect on consumer spending?
6.5
Personal Consumption Expenditures (right scale)
12,000
Ratio
5.5
10,000
8,000
5.0
6,000
4.5
4,000
4.0
2,000
3.5
0
2008Q1
2007Q1
2006Q1
2005Q1
2004Q1
2003Q1
2002Q1
2001Q1
2000Q1
1999Q1
1998Q1
1997Q1
1996Q1
1995Q1
1994Q1
1993Q1
1992Q1
1991Q1
1990Q1
1989Q1
1988Q1
1987Q1
1986Q1
1985Q1
1984Q1
1983Q1
1982Q1
1981Q1
1980Q1
1979Q1
1978Q1
1977Q1
1976Q1
1975Q1
1974Q1
1973Q1
1972Q1
1971Q1
1970Q1
1969Q1
1968Q1
1967Q1
1966Q1
1965Q1
1964Q1
1963Q1
1962Q1
1961Q1
1960Q1
Sources: Federal Reserve data through Sep. 30, 2008, Bureau of Economic Analysis, data through Dec. 31, 2008.
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$ Billions
6.0
14,000
Household Net Worth ÷ Disposable Personal Income (left scale)
Disposable Personal Income (right scale)
Big Picture: Echo Boom Bigger Than Baby Boom and Still Growing
Labor force to grow 0.8% per year through 2016
U.S. Live Births 1909–2006
Is this
the next
baby
boom?
5,000
4,500
USA Today
July 17, 2008
Live Births (000)
4,000
3,500
3,000
Echo
Boomers
(1977–2007)
120 million
Baby
Boomers
(1946–1976)
117 million
2,500
2,000
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
1942
1939
1936
1933
1930
1927
1924
1921
1918
1915
1912
1909
1,500
Sources: 1909 to 2004: U.S. Census Bureau, The 2007 Statistical Abstract. 2005 to 2007: U.S. Department of Health and Human
Services, National Center for Health Statistics. Preliminary data for 2006 and 2007: Bureau of Labor Statistics.
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U.S. Dollar
Trade-Weighted U.S. Dollar Index
Source: Copyright© Thechartstore.com, with permission, monthly data through Nov. 30, 2008.
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Federal Reserve Policy
Shock and awe
“Sure we have mortgage money. It’s just that you can’t have any.”
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The Federal Budget
“You’re in luck, in a way. Now is the time to be sick —
while Medicare still has some money.”
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Federal Budget Deficit
Actual and projected
4%
2%
Percent (%) of GDP
0%
-2%
Projected
-4%
(dotted line)
-6%
-8%
-10%
-12%
-14%
2020(E)
2016(E)
2012(E)
2008
2004
2000
1996
1992
1988
1984
1980
1976
1972
1968
1964
1960
1956
1952
1948
1944
1940
Source: Actual: Bureau of Economic Analysis quarterly data seasonally adjusted annual rates through Sept. 30, 2008. Projected: Congressional
Budget Office, January 2009 forecast adjusted for estimated 2009 fiscal stimulus package
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Federal Debt and GDP Growth
Actual and projected
25,000
12,000
10,000
20,000
15,000
GDP
Projected
(dotted lines)
6,000
10,000
4,000
Treasury Debt
Held by the
Public
5,000
Debt ($ Billions)
GDP ($ Billions)
8,000
2,000
0
0
2019Q4(E)
2018Q4(E)
2017Q4(E)
2016Q4(E)
2015Q4(E)
2014Q4(E)
2013Q4(E)
2012Q4(E)
2011Q4(E)
2010Q4(E)
2009Q4(E)
2008Q3
2007Q3
2006Q3
2005Q3
2004Q3
2003Q3
2002Q3
2001Q3
2000Q3
1999Q3
1998Q3
1997Q3
Sources: U.S. Treasury and Bureau of Economic Analysis data through Sep. 30, 2008. The Congressional Budget Office’s January 2009
baseline forecast was adjusted for estimated 2009 fiscal stimulus package.
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Public Debt
As a percent of GDP compared to other nations
180
Japan
160
140
% of GDP
120
100
Italy
Belgium
80
Norway
Germany
60
France
C anada
India
U.S.
40
Brazil
Netherlands
U.K.
Switzerland
Sweden
20
0
Source: CIA World Factbook, last updated December 2008 with 2007 estimates.
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Stock Market
“How much are those?”
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S&P 500 — Earnings Drive Stock Prices
1
10452
1 Range of bottom-up/top-down estimated 2009 S&P 500 earnings Per Share (left scale): $76.43/$63.00
2 Average 2009 S&P 500 year-end forecast (right scale) of the 12 Wall Street strategists surveyed by Barron’s, published Dec. 22, 2008
Source: Thomson Baseline, data through Dec. 22, 2008. Reuters survey of consensus estimates is as of Dec. 19, 2008.
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Stock Market Arithmetic
7% earnings growth + reinvested dividends = ~10%
1
2
1 Growth paths are compounded monthly to yield 5% and 7% annually.
2 Excludes write-offs. Data through Nov. 30, 2008.
Source: Copyright 2008© Yardeni Research, Inc. Strategist’s Handbook, Dec. 5, 2008, page 18. All rights reserved. Used with permission.
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S&P 500 Total Return Index Since 1925
Trend Line Slope = 11%
Source: Copyright© Thechartstore.com, with permission, data through Oct. 31, 2008.
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S&P 500 Index Total Return Since 1989
Trend Line Slope = 11%
“History suggests that this is a smart time
to invest in U.S. equities.”
- Warren Buffet
Oct. 17, 2008
Source: Baseline, data through Nov. 25, 2008.
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Investment Strategy
“Winning is crucial to my retirement plans.”
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Take Wall Street’s Advice?
Barron’s 2008 Forecast1
Survey of 12 stock market strategists sector picks for 2008
Consumer
Discretionary
Consumer
Staples
Energy
Financials
Deutsche Bank
X
Merrill Lynch
Health Care
Industrials
Information
Technology
X
X
X
X
X
UBS
X
X
X
X
X
X
Goldman Sachs
X
X
X
X
X
X
JP Morgan
X
Citigroup
X2
Bank of America
Securities
Credit Suisse
X
Utilities
X
X
X
X3
X
X
X4
X5
X
X
X
Lehman Brothers
Telecommunication
Services
X
Morgan Stanley
Bear Stearns
Materials
X
X
ISI Group
X
Total
2
5
5
4
8
2
8
0
2
1
-35%
-18%
-36%
-57%
-24%
-42%
-44%
-47%
-34%
-32%
(5)
(1)
(6)
(10)
(2)
(7)
(8)
(9)
(4)
(3)
Actual 2008
Sector Return
(Rank)
X
Seven out of 12 strategists
missed consumer staples.
Good Call
Bad Call
Missed
1 Published Dec. 17, 2007
2 Specialty retail
3 Semiconductors
4 Beverages
5 Pharmaceuticals
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Take Wall Street’s Advice?
Barron’s 2009 Forecast1
Survey of 12 stock market strategists sector picks for 2009
Consumer
Discretionary
Consumer
Staples
Robert Doll
Blackrock
Energy
Financials
X
Health Care
X
X
X
X
Alison Deans
Neuberger
Berman
X
X
James Paulsen
Wells Capital
Management
Tobias Levkovich
Citigroup
X
Tom Lee
JP Morgan
X
X
X
X
X
4
6
X3
X
X
X
X4
X
2
X
X
X
X
X
X
X
X
4
10
1
6
1
3
1 Published Dec. 22, 2008
2 Retailers
3 Health care equipment
4 Semiconductors
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Utilities
X
X
Jason Trennert
Strategas
Total
X
X
Rich Bernstein
Merrill Lynch
Abhijit
Chakraborti
Morgan Stanley
X
X
David Kostin
Goldman Sachs
Telecommunication
Services
X
X
X2
Materials
X
X
Chris Hyzy
U.S. Trust
Information
Technology
X
Larry Adam
DB Private
Wealth
Jerry Webman
Oppenheimer
Funds
Industrials
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2
Modern Portfolio Theory
“Your mother called to remind you to diversify.”
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Modern Portfolio Theory = Asset Allocation
Modern portfolio theory
was introduced by Harry
Markowitz with his paper
“Portfolio Selection,” which
appeared in the 1952
Journal of Finance.
Modern Portfolio Theory
Diversify
Optimize
Rebalance
Thirty-eight years later, he
shared a Nobel Prize with
Merton Miller and William
Sharpe for what has
become a broad theory for
portfolio selection.
Source: Riskglossary.com
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Asset Allocation Harvard-Yale Style
Portfolio for a New Era
In “When Markets Collide,” El-Erian proposes
this neutral asset mix for long-term investors.
Equities
U.S.
15%
Other advanced economies
15%
Emerging economies
12%
Private
7%
49%
Bonds
U.S.
5%
International
9%
Real Assets
Real estate
Commodities
6%
11%
Inflation protected bonds
5%
Infrastructure
5%
27%
Special Opportunities
Expected long-term real return
Expected standard deviation
Source: “When Markets Collide”
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CMO-PPT-1I 2.09
8%
Mohammed El-Erian, Pimco CEO
and CIO and former president of
Harvard’s endowment:
“U.S.-based individual investors
have too much invested in the
U.S. and not enough
internationally.”
“Use weakness to get exposure
to emerging economies because
that is where the growth is
going to be long term.”
“People should be asking how
much inflation protection they
have. At some point, real estate
will be attractive again as an
inflation hedge.”
5%–7%
8%–12%
Source: Barron’s, June 2, 2008
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About Risk
Investing in small companies involves greater risks not associated with investing in more established
companies, such as business risk, significant stock price fluctuations and illiquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic
upheaval, the relative lack of information about these companies, relatively low market liquidity and
the potential lack of strict financial and accounting controls and standards.
Investing in emerging markets involves greater risk than investing in more established markets such
as risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates,
adverse political developments and lack of timely information.
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Investment Theme: Dividend Growth
Dividend growers have historically done the best
Past performance cannot guarantee comparable future results.
Source: Copyright 2008© S09. Ned Davis Research, Inc. All rights reserved. Used with permission. Data as of Oct. 31, 2008
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World Energy Demand
Actual and projected
Continued Dependence on Fossil Fuels
Total Energy Demand Projected to
Increase 50% by 2030
Compound annual growth rates from 2007 to 2030
800
250
Liquids
(1.2%)
Coal
200
600
500
400
Non-OEC D
300
200
OEC D
100
British Thermal Units (quadrillion)
British Thermal Units (quadrillion)
700
(2.0%)
Natural gas
(1.7%)
150
100
Renewables
(1.9%)
50
Nuclear
(1.5%)
0
2010
2015
2020
2025
2030
0
2028
2025
2022
2019
2016
2013
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
2005
Sources: Energy Information Agency, U.S. Department of Energy, International Energy Outlook, June 2008
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To Conclude
• Stock market volatility has cycled up and
down over time. Spikes have marked stock
market turns.
• The economy is in recession.
• Stocks have bottomed mid recession.
• Stocks have historically low forward priceearnings multiples.
• Stocks have an 11% long-term trend.
• Taxable and tax-exempt bonds are on sale.
• Commodities have corrected sharply.
• Asset allocation (modern portfolio theory) is
one of the best investment methods yet.
• El-Erian’s recommended asset allocation is
something to consider.
“It’s just a correction.
The fundamentals are still good.”
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And Don’t Believe Everything You Hear
A study by Media Research
Center of a year’s worth of
economic coverage on ABC,
CBS and NBC found more
than twice as many stories
and briefs focused on
negative aspects of the
economy (62%) compared
to good news (31%).
Source: Media Research Center, “Bad News Bears,”
October 2006
“We were wondering if now would be a
good time to panic?”
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invescoaim.com
“I’m looking for a hedge against my hedge funds.”
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Thank You
FOR INSTITUTIONAL INVESTOR USE ONLY — NOT FOR USE WITH THE PUBLIC
Invesco AimSM is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim
Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital
Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each
provide investment advisory services to individual and institutional clients and do not sell securities. Please refer to
each fund’s prospectus for information on the fund’s subadvisors. Invesco Aim Distributors, Inc. is the U.S.
distributor for the retail mutual funds, exchange-traded funds and institutional money market funds represented by
Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd.
All data provided by Invesco Aim unless otherwise noted.
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