Market overview
- Global data that showed slowing economic conditions, combined with the devaluation of China’s currency, the renminbi, contributed to a sharp sell-off in global equities during the third quarter.
- News out of China continued to raise questions about the strength of its economy.
- Europe enjoyed relative tranquility after approval of the Greek bailout package. Generally positive European data continued the trend from the first half of 2015.
Performance highlights
- During the third quarter, Invesco European Growth Fund (Trades, Portfolio) Class A shares at net asset value (NAV) declined, but modestly outperformed the MSCI Europe Growth Index. (Please see the investment results table on page 2 for fund and index performance.)
- Stock selection in the consumer discretionary and industrials sectors drove the fund’s relative results. A modest cash position during a period of market volatility was supportive as well.
Contributors to performance
- Fund holdings in the consumer discretionary, industrials and health care sectors outperformed those of the benchmark and were among the largest contributors to relative performance.
- A modest cash position was beneficial during the sharp market volatility. The fund’s cash position results from the investment team’s bottom-up stock selection process, rather than any top-down or risk management allocation decisions.
- Favorable stock selection in the UK resulted in a positive return for the fund compared to a negative index return for the UK, which added to both absolute and relative results.
- Amlin PLC (LSE:AML, Financial) was one of the fund’s top performers for the quarter. Amlin is a UK-based, global specialty insurer that provides insurance to commercial enterprises and reinsurance to other insurance companies. The company agreed to be acquired by Mitsui Sumitomo Insurance Co. Ltd. (not a fund holding) at a 36% premium to the previous day’s closing share price.
Detractors from performance
- From a geographic perspective, fund holdings in Italy, Turkey and Switzerland were weak.
- A meaningful underweight in consumer staples, one of the quarter’s stronger sectors, detracted from relative results as well.
- UK-based investment management firm Aberdeen Asset Management PLC (LSE:ADN, Financial) was one of the fund’s largest individual detractors for the quarter. Weak equity markets and fund underperformance put pressure on company inflows, hampering its operating conditions. We remain confident in the Aberdeen franchise and its position as a high quality global asset manager.
Positioning and outlook
- Within this environment, valuations of the stocks on our watch list of high quality companies have become more attractive. Therefore, if short-term weakness continues, we will likely seek to purchase these high quality companies at lower prices.
- During the quarter, we put cash to work and added several new holdings to the portfolio including Tullett Prebon PLC (LSE:TLPR, Financial), Deutsche Post AG (XTER:DPW, Financial), Compagnie Financiere Richemont SA (XPAR:MLFMM, Financial), Sandvik AB and Origin Enterprices PLC (0.50%, 0.72%, 0.79%, 0.44% and 0.70% of total net assets, respectively).
- Turkmenistan-based independent oil and gas company Dragon Oil PLC was acquired by Emirates National Oil Co. (not a fund holding) at an attractive price during the quarter. We tendered the fund’s shares, eliminating it from the fund.
- Regardless of the macroeconomic environment, we remain focused on a bottom-up investment approach of identifying attractive companies that fit our EQV (Earnings, Quality, Valuation) investment process.
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. Performance shown prior to the inception date of Class Y shares is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. 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.
Index source: FactSet Research Systems Inc.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
