Market overview
- Global equity markets posted gains for the third quarter driven by solid performance in July and August even as September returns were negative.
- After many countries had some success in controlling the spread of COVID-19, a resurgence in global infections raised the prospect of new restrictions in some regions.
- European equities were positive for the quarter, but the rate of economic recovery slowed.
- UK equities declined, mainly due to exposure in the weaker oil and financial sectors.
- Emerging market equities outperformed developed market equities for the quarter.
Positioning and outlook
- We added one new holding during the quarter, France-based Sanofi (SNY, Financial), a leading pharmaceuticals company with presence in several therapeutic areas including oncology, central nervous system, metabolic disorders and multiple sclerosis (1.00% of total net assets). We exited France-based eyewear company EssilorLuxottica (XPAR:EL, Financial) and Netherlands-based financials company ING (ING, Financial) (both 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 so far this year, we believe the fund could be well positioned to benefit whether the market sustains its recovery or experiences a correction due to a second wave of COVID-19.
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
- Fund holdings in the communication services sector outperformed those of the benchmark, adding to relative return. France-based companies Bollore (XPAR:BOL, Financial) and Metropole Television were key contributors during the period (1.84% and 0.86% of total net assets, respectively).
- Stock selection and an underweight in information technology added to relative performance. Switzerland-based Logitech International (XSWX:LOGN, Financial) (0.99% of total net assets) was a notable contributor within the sector.
- Geographically, stock selection in France, combined with an underweight, was the largest contributor to relative results. An overweight in Ireland and lack of exposure in Belgium positively affected relative return.
- Swedish financials company Investor AB (OSTO:INVE A)was the fund's leading individual contributor. The investment holding company had strong performance driven by underlying strength in its portfolio of Scandinavian-listed companies.
Detractors from performance
- Stock selection in the industrials sector was the largest detractor from relative return.
- The fund's financials holdings underperformed those of the benchmark sector, detracting from relative results. An overweight in the sector also hampered relative return. Turkey-based Haci Omer Sabanci (IST:SAHOL) and Germany-based Allianz (XTER:ALV) were notable detractors during the period.
- Geographically, stock selection in the UK and Germany and exposure in Turkey were among the largest detractors from relative performance.
- 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 DCC (LSE:DCC) was the largest individual detractor. The security sold off during the quarter amid concerns about a second COVID-19 wave and its effect on retail fuel volumes. We believe the company has an excellent capital allocation record, a strong balance sheet and an attractive valuation. In addition, DCC announced strategic acquisitions of two smaller peers during the quarter.
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.
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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.
