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Sydnee Gatewood
Sydnee Gatewood
Articles (3566) 

Invesco European Growth Fund 2nd-Quarter Performance Commentary

Discussion of markets and holdings

Market overview

  • The global spread of the novel coronavirus continued into the second quarter of 2020. However, during the quarter, many countries achieved some success in controlling the spread and were able to slowly reopen their economies.
  • Global equity markets benefited from government policy response to the crisis, which was swift and encouraging. Many economies received fiscal stimulus and very significant monetary stimulus, including the Bank of England’s bond buying program and the European Central Bank’s Pandemic Emergency Purchase Programme (PEPP).
  • The massive monetary policy response created a second quarter environment in which investors embraced risk. European and UK equity markets rose after a deep rout in the first quarter.

Positioning and outlook

  • We added one new holding during the quarter, Sweden-based Sandvik (OSTO:SAND) – a global leader in tooling and mining equipment (0.84% of total net assets). We exited several positions: UK-based communication services company Informa (LSE:INF), French industrials company Bureau Veritas (XPAR:BVI), Netherlands-based holdings company Exor (MIL:EXO), UK-based energy company John Wood (LSE:WG), Italy-based Mediobanca (MIL:MB) and France-based materials company Vicat (XPAR:VCT) (all 0.00% of total net assets).
  • Our team has continued to follow the same long-term, bottom-up Earnings-Quality-Valuation (EQV) investment philosophy/process. Our EQV strategy is long-term oriented; therefore, we believe market corrections can provide attractive opportunities to invest in undervalued businesses.
  • After purchasing several high quality growth companies at attractive valuation levels during the first half of the year, we believe the fund could be well positioned to benefit whether the market sustains its recovery or there is a correction due to a second wave of COVID-19.

Performance highlights

Contributors to performance

  • Fund holdings in the financials sector outperformed those of the benchmark, adding to relative return. A meaningful overweight in the sector was beneficial as well. Italy-based financial services company FinecoBank (MIL:FBK) and Russia-based Sberbank (MIC:SBERP) were among the top contributors during the quarter
  • Stock selection and an underweight in health care added to relative performance. German biotechnology company MorphoSys (XTER:MOR) was a notable contributor within the sector.
  • An underweight in consumer staples added to relative results.
  • Geographically, stock selection in Italy, Switzerland and Ireland positively affected relative return. An underweight in Switzerland was also beneficial.
  • UK-based industrials company DCC (LSE:DCC) was the fund’s leading individual contributor. The company benefited from a relief rally driven by proactive central banks and an improving demand outlook for its end business segments, especially energy, as COVID-19 restrictions were lifted.

Detractors from performance

  • The fund’s information technology holdings outperformed those of the benchmark sector, but an underweight in the sector, the quarter’s best performing sector, hampered relative return.
  • Stock selection in the real estate sector detracted from relative return, with UK-based global real estate services provider Savills (LSE:SVS) a key individual detractor (2.07% of total net assets).
  • Geographically, stock selection in the Netherlands and the US (specifically, Philip Morris International (PM) – a US multinational company that sells exclusively outside the US) detracted from relative return.
  • Given the rising equity market, the fund’s cash position dampened relative results. As a reminder, cash is a by-product of our bottom-up stock selection process.
  • UK-based industrials company Ultra Electronics (LSE:ULE) was the largest individual detractor. Despite a relief rally in March, the stock’s performance has been weak as the company faces tough competition.

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.

This does not constitute a recommendation of any investment strategy or product for a particular investor.

Investors should consult a financial professional before making any investment decisions.

Note: Not all products available at all firms. Financial professionals, please contact your home office.

The opinions expressed are those of the fund’s portfolio management, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. Holdings are subject to change and are not buy/sell recommendations.

All data provided by Invesco unless otherwise noted.


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