Market overview
- Global equity markets declined in the first quarter amid volatility sparked by Russia’s invasion of Ukraine, rising commodity prices, rampant global inflation and central banks shifting toward tighter monetary policy.
- Russia’s invasion exacerbated inflation pressures, disrupting already strained supply chains and increasing shortages of oil, gas and raw materials.The price of oil rose sharply, with crude prices reaching their highest price per barrel since 2008.
- Eurozone equities fell sharply, as the region is a big importer of oil and natural gas from Russia. The UK, which is not as dependent on these imports, fared better and had a positive return for the quarter.
Positioning and outlook
- We added two new holdings during the quarter: France-based industrial gases company Air Liquide (XPAR:AI, Financial) and Sweden-based industrials company Husqvarna (OSTO:HUSQ A, Financial) (1.50% and 1.02% of total net assets, respectively). We exited two positions: Switzerland-based consumer staples company Philip Morris International (PM, Financial) and Germany-based industrials company Knorr-Bremse (XTER:KBX, Financial) (both 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 EQV European Growth Fund 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
- Stock selection and an underweight in the information technology sector added to relative performance. An underweight in Netherlands-based ASML (ASML, Financial) and not owning Germany-based SAP (SAP, Financial) added to relative results (1.13% and 0.00% of total net assets, respectively).
- Stock selection in the consumer staples sector added to relative return. Ireland-based Origin Enterprises (LSE:OGN, Financial), a leading provider of farm inputs, has indirectly benefited from higher agricultural commodity prices.
- The fund’s cash position, which averaged 2.5%, added to relative return given declining equity markets.
- Geographically, stock selection in Germany and Norway added to relative return. An underweight in Germany and exposure in Turkey were beneficial as well.
- Norway-based energy company TGS (OSL:TGS, Financial) was the fund’s leading individual contributor. TGS, a global leader in subsurface geotechnical data, has benefited from higher energy prices. Recent tension with Russia has renewed interest in oil and gas exploration, which could potentially benefit TGS because robust geotechnical data is a critical success factor.
Detractors from performance
- Stock selection in the financials sector was the largest detractor from relative return during the quarter. Within the sector, Italy-based FinecoBank (MIL:FBK, Financial) was weak and not owning UK-based HSBC (HSBC, Financial) also hampered relative return (2.86% and 0.00% of total net assets, respectively).
- The fund’s health care holdings underperformed those of the benchmark sector, detracting from relative return. Hungary-based Gedeon Richter (BUD:RICHTER, Financial) and Ireland-based ICON (ICLR, Financial) were notable detractors (1.81% and 1.43% of total net assets, respectively).
- The fund’s industrials holdings outperformed those of the benchmark sector, but an overweight in the sector detracted from relative results.
- Geographically, stock selection in the UK and France detracted from relative return. Exposure in Russia also negatively affected relative performance.
- Russia-based Sberbank (MIC:SBER, Financial) was fund’s leading individual detractor. Due to market closures, lack of trading partners, low liquidity, settlement concerns and future uncertainty, Invesco has been employing fair value pricing for Russian equities held in the fund, and, therefore, valuations of these securities have been marked to zero. This impact has already been factored into the fund’s NAV.
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.
On February 28, 2022, Invesco European Growth Fund (Trades, Portfolio) was renamed Invesco EQV European Equity Fund. Please see prospectus for more information. Class Y shares and Investor Class shares are available only to certain investors. See the prospectus for more information.
The fund holdings are organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s.
