Market overview
- Global equity markets posted gains for the fourth quarter after better inflation data sparked a rally in October and November. However, investor sentiment worsened in December after central banks signaled continued interest rate hikes into 2023 as inflation remained above target levels.
- International stocks outperformed US stocks, led by results in Europe and the UK.
- Amid Europe’s continuing energy crisis, milder autumn weather reduced energy demand, alleviating shortage concerns, but energy prices remain high and are a key contributor to high inflation.
Positioning and outlook
- We added one new holding during the quarter, multinational consumer health care company Haleon (HLN, Financial) (1.11% of total net assets). We exited fourholdings: French luxury goods company Kering (XPAR:KER, Financial), British building materials distributor Travis Perkins (LSE:TPK, Financial), French advertising company Criteo (CRTO, Financial) and Russian technology company Yandex (YNDX, Financial) (all 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 Equity Fund (Trades, Portfolio) 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 communication services sector outperformed those of the benchmark sector, adding to relative performance. French broadcaster Metropole Television (XPAR:MMT, Financial) (1.42% of total net assets) was a notable contributor during the quarter.
- Stock selection in the consumer discretionary sector added to relative results, with French property developer Kaufman & Broad (XPAR:KOF, Financial) a key contributor.
- An underweight in the health care sector was beneficial as well.
- Geographically, exposure to Turkey, a country not represented in the benchmark index, contributed to relative return. Security selection in Sweden and Italy, as well as an overweight in Italy, added to relative results.
- Italian financials company FinecoBank (MIL:FBK, Financial) was the fund’s leading individual contributor. Fineco has continued to execute its strategy of delivering higher quality and lower cost asset management, brokerage and banking services in Italy. As markets rallied in the fourth quarter, Fineco was rewarded for its ability to profitably take market share from its competitors and benefit from a rising interest rate environment.
Detractors from performance
- Stock selection in the financials sector was the largest detractor from relative return during the quarter. Within the sector, German financial exchange operator Deutsche Börse (XTER:DB1, Financial) (2.86% of total net assets) was a notable detractor.
- The fund’s industrials holdings underperformed those of the benchmark sector, detracting from relative return. DCC (LSE:DCC, Financial), a British operator of distribution businesses, was a notable detractor.
- Geographically, stock selection in Germany and the UK detracted from relative return. An underweight in Germany also negatively affected relative performance.
- In a rising equity market environment, the fund’s cash position (average of 2.3%) hampered relative performance. As a reminder, cash is by-product of our bottom-up stock selection process.
- German financials company flatexDEGIRO (XTER:FTK, Financial) was the fund’s largest individual detractor. As the leading pan-European discount broker, flatexDEGIRO was pressured by lower trading volumes and a generally higher aversion to risk during the quarter. A one-time increase in the firm’s capital requirements due to successful business growth also pressured shares. In the long term, we believe the company’s ability to attract and retain clients who seek better and cheaper brokerage services could support strong profitable growth.
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.
