Market overview
- Global equity markets ended the third quarter in negative territory, weighed down by rising inflation, central bank tightening and a slowing global economy.
- The US Federal Reserve, the European Central Bank and the Bank of England all raised interest rates.
- Europe’s energy crisis continued as Russia cut off gas flows through the Nord Stream 1 pipeline.
- Sentiment in the UK was negatively affected by Prime Minister Boris Johnson’s resignation, rising energy prices, higher interest rates and the new government’s controversial fiscal policy.
Positioning and outlook
- We added one new holding during the quarter, Germany-based IT company Bechtle (XTER:BC8, Financial) (0.51% of total net assets). We exited four positions: UK-based industrials company HomeServe (LSE:HSV, Financial), Germany-based industrials company MTU Aero Engines (XTER:MTX, Financial), UK-based financials company Jupiter Fund Management (LSE:JUP, Financial) and Switzerland-based industrialscompany Kuehne + Nagel International (XSWX:KNIN, Financial) (all 0.00% of total net assets). During the quarter, the fund’s position in UK-based industrials company Ultra Electronics (LSE:ULE) was acquired by Cobham (not a fundholding).
- 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
- Fund holdings in the financials sector outperformed those of the benchmark sector, adding to relative performance. UK-based online trading provider IG Group (LSE:IGG, Financial) and Italy-based online brokerage FinecoBank (MIL:FBK, Financial) were notable contributors during the quarter.
- Stock selection and an underweight in the health care sector added to relative results. Not owning certain weaker performing index stocks, including GSK (GSK, Financial) and Sanofi (SNY, Financial), was beneficial (both 0.00% of total net assets).
- Stock selection in communication services also had a positive effect on relative return. An overweight in France-based conglomerate Bollore (XPAR:BOL, Financial) (2.68% of total net assets) contributed to relative performance.
- Geographically, stock selection in Germany and Italy added to relative return. Exposure to Turkey, a country not represented in the benchmark index, contributed to relative results as well.
- Turkey-based financials company Haci Omer Sabanci (IST:SAHOL, Financial) was the fund’s leading individual contributor. Sabanci, along with the rest of the Turkish market, has had several tough years under President Erdogan’s presidency. However, the company’s businesses and balance sheet have been strong. After the quarter’s rally the stock was still trading at an attractive valuation.
Detractors from performance
- Stock selection in the industrials sector was the largest detractor from relative return during the quarter. Within the sector, UK-based DCC (LSE:DCC, Financial) was weak and hampered relative return.
- The fund’s information technology (IT) holdings underperformed those of the benchmark sector, detracting from relative return. UK-based IT services company FDM (LSE:FDM, Financial) (0.73% of total net assets) was a notable detractor.
- Stock selection and an overweight in the real estate sector detracted from relative performance.
- Geographically, stock selection in the UK and France detracted from relative return. The fund’s US holdings also negatively affected relative performance.
- UK-based commercial real estate broker Savills (LSE:SVS, Financial) was the fund’s largest individual detractor. The stock sold off due to fears that macroeconomic weakness and higher interest rates would drive a slowdown in the real estate market. We believe the secular trends of outsourcing property management and demand for income-generating assets will persist. We also believe China’s COVID restrictions will ease and transactional activity will return after values recalibrate.
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.
