The benefit of fearing disaster

  @FortuneMagazine August 29, 2013: 7:31 AM ET
INV16 tom bastian

Bastian at Invesco's Houston office


Tom Bastian started managing money in 1997, right before the Asian financial crisis hit. The ensuing plunge in those markets helped form his investing philosophy. Today Bastian, who runs the $11.7 billion (assets) Invesco Equity and Income Fund, obsesses about what might go wrong. "I'm fairly conservative anyway," he says, "but those experiences emblazoned on me the need to manage and understand the downside risk." That means Bastian focuses on value -- in any market. About two-thirds of his fund's assets are in stocks, with fixed-income and convertible bonds -- which offer the income of bonds and the potential upside of equities -- making up the rest. The strategy has paid off: Over the past three years, the fund has returned an average annualized 13.6%, vs. 10.7% for its category, according to Morningstar. Bastian, 49, described how finding beaten-down stocks protects against calamity. Edited excerpts:

In a difficult and uncertain environment, what's your strategy?

Everything we do is driven by trying to get risk/reward in our favor. We want to find companies that are unloved, undervalued, and under-earning, and then find a catalyst that allows us to participate on the upside.

Financials are your top sector. What do you see there?

In the 2004-2005 period, when they were overearning and everybody loved them, we went underweight. That didn't do much for us then. In 2008 it helped us dramatically. Since the end of 2008, we have gradually and opportunistically added to the financials. We think broadly that they are still under-earning relative to historic levels, and the rules of engagement are becoming clearer and clearer.

Join the Conversation
Sponsored by
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 4:21am ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.36%4.24%
15 yr fixed3.39%3.26%
5/1 ARM3.36%3.27%
30 yr refi4.34%4.22%
15 yr refi3.38%3.24%
View rates in your area
Find personalized rates:
Rate data provided
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.