Invesco has launched an Asian balanced fund for Hong Kong retail investors, a move that highlights how the funds industry is adapting to the end of the craze in capital-guaranteed mutual funds. This open-ended fund is meant to fill a gap in Invesco's current stable, as its balanced products are global, not regional, in focus.

The fund is also registered in Macau and will be offered on an offshore basis to Singaporeans.

First of all, Invesco is returning the concept of equities investment to the retail space. It is still providing a cushion, but in the form of tactical asset allocation to fixed income rather than trying to structure a guarantee.

This is in part because Invesco is sufficiently bullish on Asian equities to make the case. And in part because interest rates have fallen so low that it is nearly impossible to guarantee investors' capital and still offer an upside.

Another notable aspect of this fund is that it aims for absolute returns and won't track a benchmark or compare itself to peers, says Anna Tong, director of investments for Asia-Pacific at Invesco in Hong Kong.

Lastly, the fund is notable because it identifies Invesco as favouring Asia (including Australia/New Zealand but not Japan) over the United States or Europe as an equity play.

Therefore this fund capitalizes on the characteristics that many bank distributors say they now want, according to an in-depth look at distributors in the upcoming August/September edition of AsianInvestor magazine.

"This is our first move away from guaranteed funds," says Hong Kong CEO Edith Ngan. "The balanced fund is a mid-way house for income and capital appreciation."

Tong says the initial allocation to equities will be 70%, the maximum allowed in the fund's structure. But Invesco will focus on regional stocks that pay dividends, in order to secure a reliable payout. Similarly it will look for bonds from Asian borrowers paying a coupon. But it will avoid securities from cyclical issuers in favour of sectors such as consumer goods, finance, utilities and industrials.

Ngan says the firm is targeting retail investors "who believe in the Asia story and want sustainable yields but with a low-risk exposure".

If this fund highlights anything else, it is that fund managers are bullish on Asian stocks but can't successfully communicate this belief to retail investors - be they jaded vets or novices still creeping out of low-interest bearing bank deposits. Distributors still regard the "E" word with some measure of dread.

Anna Tong cites the historical, steady performance of dividend-paying stocks in Asia versus the entire Asian universe; the historically low valuation of equities here; the favourable equity risk premiums; and helpful expansionist monetary policy across the region. For now she is underweight markets such as Taiwan and Korea, mainly because issuers there rarely pay dividends, and overweight Australia, Hong Kong, Thailand, Malaysia and India.

The bond allocation is there to help skittish investors rest easy at night, as Invesco will seek out those with paying coupons and low volatility; the bond portfolio's average credit rating will be investment grade or better, consisting of mainly highly rated securities along with a few such as Republic of the Philippines debt that is not investment grade but could be upgraded.

Among the banks distributing the fund are Bank of America, Bank of China, Citibank and Standard Chartered Bank. The management fee is 1.25%, a bit less than a typical equities mutual fund of 1.5%-2.0%, reflecting the bond component.