Market overview
- Most developed global equity markets ended the fourth quarter in positive territory despite rising inflation and the emergence of Omicron, a new COVID-19 variant.
- Pandemic-related supply chain disruptions and labor shortages intensified during the quarter, resulting in broadly higher costs for companies and consumers.
- To combat inflation, the Bank of England raised interest rates in December, while the European Central Bank confirmed that its pandemic emergency purchase programme (PEPP) would end in March 2022.
Positioning and outlook
- We added three new holdings during the quarter: Spain-based travel technology company Amadeus IT (XMAS:AMS), UK-based consumer goods company Reckitt Benckiser (LSE:RKT, Financial) and Germany-based online broker flatexDEGIRO (XTER:FTK, Financial) (1.08%, 1.24% and 1.08% of totalnet assets, respectively). We exited three positions: France-based Sanofi (SNY, Financial) and Ubisoft Entertainment (XPAR:UBI, Financial) and Germany-based MorphoSys (MOR, Financial) (all 0.00% of total net assets).
- Regardless of the macroeconomic environment, we remain focused on applying our well-established, long-term, bottom-up Earnings, Quality, Valuation (EQV) investment process that seeks to identify attractively valued, high-quality growth companies.
Performance highlights
- Invesco European Growth Fund (Trades, Portfolio) Class A shares at net asset value (NAV) underperformed its benchmark index. (Please see the investment results table on page 2 for fund and index performance.)
Contributors to performance
- An underweight in information technology contributed to relative performance.
- The fund’s materials holdings outperformed those of the benchmark sector, adding to relative return, with UK-based industrial gases and engineering company Linde (LIN, Financial) and Ireland-based building materials company CRH (CRH, Financial) (1.66% of total net assets) being key contributors.
- Stock selection in the real estate sector also added to relative performance. UK-based real estate services company Savills (LSE:SVS, Financial) (3.51% of total net assets) was a notable contributor during the quarter.
- Geographically, stock selection in Sweden and Denmark added to relative return. An underweight in Denmark was beneficial as well.
- Sweden-based global engineering company Sandvik (OSTO:SAND) was the fund’s leading individual contributor. The stock’s valuation multiples expanded and earnings expectations rose due to a combination of effective underlying execution, improving end markets and a positive market response to the company’s management of its product portfolio.
Detractors from performance
- Stock selection and an overweight in the financials sector was the largest detractor from relative return during the quarter. Within the sector, Turkey-based conglomerate Haci Omer Sabanci (IST:SAHOL) (0.78% of total net assets) was weak.
- Fund holdings in the industrials and consumer discretionary sectors underperformed those of the benchmark sectors, detracting from relative results. Within industrials, UK-based specialty recruitment firm Hays (LSE:HAS) (1.63% of total net assets) was a notable detractor. Not owning UK-based Ferguson hamperedrelative performance as well. In the consumer discretionary sector, not owning Switzerland-based CIE Financiere Richmont and having a smaller position in France-based luxury goods company LVMH Moet Hennessy Louis Vuitton (XPAR:MC) compared to the benchmark index negatively affected relative results (0.00% and06% of total net assets, respectively).
- Geographically, stock selection in Switzerland and France detracted from relative return. Exposure in Russia and an underweight in Switzerland negatively affected relative performance.
- Russia-based Sberbank (MIC:SBER) was fund’s leading individual detractor. Sberbank had an operationally robust 2021, but recent saber-rattling around Ukraine and the associated geopolitical uncertainty led to a sell off in most Russian equities.
Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions and changes in net asset value (NAV). Investment return and principal value will vary, and you may have a gain or a loss when you sell shares. No contingent deferred sales charge (CDSC) will be imposed on redemptions of Class C shares following one year from the date shares were purchased. Performance shown at NAV does not include applicable CDSC or front-end sales charges, which would have reduced the performance. The Investor Class shares have no sales charge; therefore, performance is at NAV. Class Y shares have no sales charge; therefore, performance is at NAV. Returns less than one year are cumulative; all others are annualized. Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information. Index returns do not reflect any fees, expenses, or sales charges.
