Market overview
- Following a sharp selloff late last year, global equities rebounded in the first quarter of 2019, fueled by accommodative central bank policy and potential for a US/China trade deal.
- In January, China’s central bank initiated a stimulus program to counteract its slowing economy, while the European Central Bank and US Federal Reserve later indicated they would not raise interest rates for the remainder of 2019.
- Lack of consensus on a deal for the UK’s withdrawal from the European Union prompted additional concerns for UK and Eurozone economies, though equity markets across the region posted gains.
- Both emerging and developed markets had positive returns for the quarter.
Performance highlights
- Invesco European Growth Fund (Trades, Portfolio) Class A shares at net asset value (NAV) posted a positive return during the quarter, but underperformed its benchmark index. (Please see the investment results table on page 2 for fund and index performance.)
Contributors to performance
- Stock selection in the real estate and information technology (IT) sectors were key return
drivers, adding to relative performance.
- Within the real estate sector, UK-based Savills was a notable contributor during the quarter
and in the IT sector, UK-based Micro Focus International added nicely to both absolute and
relative performance (1.85% and 0.74% of total net assets, respectively).
- Geographically, stock selection in the UK and exposure to Russia, which is not represented in
the benchmark index, added to relative performance.
- Sberbank of Russia was the fund’s leading individual contributor for the quarter. In January,
the stock rallied with the broader emerging markets following a December selloff.
Detractors from performance
Contributors to performance
- Stock selection in the real estate and information technology (IT) sectors were key return drivers, adding to relative performance.
- Within the real estate sector, UK-based Savills was a notable contributor during the quarter and in the IT sector, UK-based Micro Focus International added nicely to both absolute and relative performance (1.85% and 0.74% of total net assets, respectively).
- Geographically, stock selection in the UK and exposure to Russia, which is not represented in the benchmark index, added to relative performance.
- Sberbank of Russia was the fund’s leading individual contributor for the quarter. In January, the stock rallied with the broader emerging markets following a December selloff.
Detractors from performance
- Stock selection in the health care and consumer discretionary sectors were key detractors from relative return.
- In health care, having no exposure to strong index performers, including Roche in Switzerland and Novo Nordisk in Denmark, hampered relative return (both 0.00% of total net assets). In the consumer discretionary sector, not owning LVMH Moet Hennessey Louis Vuitton and Kering in France and Adidas in Germany detracted from relative performance (all 0.00% of total net assets).
- Geographically, stock selection in France and Ireland detracted from relative return.
- A cash position in a rising market detracted from relative results. As a reminder, cash is a by-product of our bottom-up stock selection process.
- German biotechnology company MorphoSys (MOR, Financial) was one of the fund’s largest individual detractors for the quarter. The stock’s performance was weak as the company lost a patent litigation case during the quarter. However, this litigation concerned only one of many drug candidates, and the company’s broader product development pipeline still offers great upside, in our view.
Positioning and outlook
- We initiated one new position during the quarter, France-based industrials company Bureau Veritas (0.98% of total net assets). We sold two positions, UK-based consumer staples company Unilever and Germany-based industrials company Deutsche Post (both 0.00% of total net assets).
- We hope the broadening of investor focus that occurred in the second half of 2018 and first quarter 2019 will persist and develop into a more prolonged market rotation. In an environment where US growth might be peaking, we believe our quality growth style could be moving back into favor.
- Regardless of the macroeconomic environment, the team remains focused on applying its well-established, long-term, bottom-up Earnings, Quality, Valuation (EQV) investment process that seeks to identify attractively valued, high-quality growth companies.
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.
