Market overview
- Global equity markets declined in the second quarter as record inflation, rising interest rates and recession fears led to generally weaker consumer sentiment around the globe.
- To tame inflation, central banks in the US and the UK raised interest rates, while the European Central Bank is poised to do so in July.
- In Europe, reduction of gas supplies from Russia due to the war in the Ukraine has driven prices higher, with mounting fear of gas shortages and rationing.
- Against this backdrop, emerging market equities outperformed developed equity markets for the quarter.
Positioning and outlook
- We added three new holdings during the quarter: France-based energy company TotalEnergies (TTE, Financial), Sweden-based financials company Svenska Handelsbanken (OSTO:SHB A, Financial) and Netherlands-based energycompany Shell (SHEL, Financial) (1.52%, 1.07% and 0.50% of total net assets, respectively). We exited two positions: UK-based communication services company WPP (LSE:WPP, Financial) and Switzerland-based industrials company OC Oerlikon (XSWX:OERL, 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) outperformed its benchmark index. (Please see the investment results table on page 2 for fund and index performance.)
Contributors to performance
- Fund holdings in the consumer discretionary sector outperformed those of the benchmark sector, contributing to relative performance. Netherlands-based conglomerate Prosus (XAMS:PRX, Financial) was a key contributor during the quarter.
- Stock selection and an underweight in the materials sector added to relative results. Not owning certain weaker performing index stocks, including mining companies Anglo American and Rio Tinto, was beneficial (both 0.00% of total net assets).
- The fund’s cash position, which averaged 2.7% during the quarter, added to relative return given declining equity markets. As a reminder, cash is a by-product of our bottom-up stock selection process.
- Geographically, stock selection in the Netherlands, Denmark and Ireland added to relative return.
- UK-based industrials company HomeServe (LSE:HSV, Financial) was the fund’s leading individual contributor. The home repair services company received a firm acquisition offer from a subsidiary of Brookfield Asset Management (not a fund holding) at a premium above where the stock had been trading.
Detractors from performance
- Stock selection in the financials sector was the largest detractor from relative return during the quarter. Within the sector, Germany-based online broker flatexDEGIRO (XTER:FTK, Financial) was weak and hampered relative return.
- The fund’s health care holdings underperformed those of the benchmark sector, detracting from relative return. An underweight in the sector negatively affected relative results as well.
- An underweight in energy, the best performing benchmark sector during the quarter, had a negative effect on relative performance.
- Geographically, stock selection in the UK, Sweden and France detracted from relative return. An overweight in Sweden also negatively affected relative performance.
- UK-based industrials company DCC (LSE:DCC, Financial) was the fund’s leading individual detractor. DCC sold off on concerns about how Europe’s energy situation will be resolved. The company has a good record during turbulent times, but the present situation is notably unique. We have confidence in DCC’s ability to navigate the challenges, and the stock has been trading at attractive levels.
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.
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 financial professionals 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.
