Global. Invesco global equity funds Investment update Six months to 30 September 2018

Transcription

1 Invesco global equity funds Investment update Six months to 30 September 2018 Global This investment update covers the following funds: Invesco Global Equity Fund (UK) Invesco Global Equity Income Fund (UK) Invesco Global Opportunities Fund (UK) Invesco Global Smaller Companies Fund (UK) Invesco Managed Growth Fund (UK) Invesco Managed Income Fund (UK) Global market overview Global equity markets delivered strong returns over the review period, on the back of a de-escalation of risk to the global economy. Chinese policy makers have moved to push back against a potential disorderly depreciation of the yuan, Mexico and the US have made progress on trade negotiations, and speculation mounted that the Trump administration would continue to de-escalate global trade skirmishes. Indeed, markets proved resilient in the face of what could be a long conflict between the US and China following China s decision to call off planned talks after the latest round of tariffs in September. More clarity is required from the White House on its plans, however, before the outlook for trade and its impact on global growth can be fully assessed. The divergence between the US and the rest of the world has become increasingly stark. The US equity market continued to drive global equity market performance led by technology stocks. The so-called Faang stocks (Facebook, Amazon, Apple, Netflix and Google s parent company Alphabet) have dominated market performance, seeming to promise relentless growth based on society s digital revolution. Technology company growth rates are considered relatively resilient to escalating trade tensions too. In contrast, weakness in emerging equity markets was broad based over the six months. Emerging markets themselves, however, have seen a wide divergence in performance. Emerging economies were challenged by a strengthening US dollar and the scaling back of ultra-loose monetary policy (when the money supply is expanded using interest rates and other tools) in developed markets, though parts of Asia proved somewhat resilient. Sentiment was soured, however, by a number of issues including threats to global trade, Turkey s currency crisis, and political uncertainties and currency depreciation in Brazil. Whilst there are some warning signs of more difficult economic conditions ahead (a flattening US bond yield curve for example, which as an economic indicator suggests little difference between shortterm and long-term interest rates for bonds of the same credit quality), overall we consider the global economic outlook at present to be relatively benign with modest economic growth and few signs of significant inflationary pressure. Optimism over corporate earnings growth further boosted sentiment and global equity markets reached a seven-month high in September 2018.

2 Invesco Global Equity Fund (UK) Managed by Nick Mustoe (lead) and Global Equity Group, Henley Investment Centre Fund review and strategy Global equity market leadership has been dominated by a narrow range of growth orientated stocks concentrated in US Big tech companies over the review period. However, these companies appear expensive to us on many metrics hence the fund s underweight exposure versus the reference index (MSCI AC World index). In contrast, in Europe, where the fund has a large position, the banking sector has been weak. This is the result of slower than expected monetary policy normalisation, together with renewed political instability in Italy, and as such has contributed towards the fund s underperformance. Positive performance came from the fund s energy holdings which gained as Brent crude pushed through $80 a barrel in June 2018 for the first time in three and a half years as the global supply imbalance continues to correct. The fund is entirely driven by stock selection, seeking what we view as the best investment ideas globally. The fund has a core of what we believe are sustainable growth, cash-generative companies in sectors, such as pharmaceuticals, as well as companies with a strong aftermarket or services element which supports earnings stability, many of which are found in the industrial sector. The fund also has a number of turnaround and special situation investments. Fund risk Please refer to the derivatives risk which applies to this Invesco Global Equity Income Fund (UK) Managed by Nick Mustoe (lead) and Global Equity Income Group, Henley Investment Centre Fund review and strategy Global equity market leadership has been dominated by a narrow range of growth orientated stocks concentrated in US Big tech companies over the review period. However, these companies pay no dividends and appear expensive to us on many metrics hence the fund s underweight exposure versus the reference index (MSCI World index). In contrast, high yielding sectors where the fund is invested have underperformed the wider market and as such, fund performance has struggled overall. Positive performance came from the fund s energy holdings which gained as Brent crude pushed through $80 a barrel in June 2018 for the first time in three and a half years as the global supply imbalance continues to correct. Both country and sector exposures are a result of our bottom-up stock selection process. The portfolio reflects what we view as the most attractive opportunities that we have identified through our research process. We seek to invest in high quality companies that we believe can sustain and grow profit margins and improve returns over the economic cycle. We see growing and sustainable dividends as clear evidence of such companies. In aggregate, we target companies that offer attractive yields, sustainable and growing free cash flow and capital upside potential. Fund risk Please refer to the derivatives risk which applies to this Global Equity Fund (UK) 6.12% Fund Global Equity Income Fund (UK) 8.19% Fund Launch date: Current fund value: 1,491.63m Historic yield: 0.83% Launch date: Current fund value: m Historic yield: 3.21% Financials Energy Information Technology Industrials Health Care Consumer Discretionary 9.79 Telecommunication Services 4.14 Materials 4.04 Consumer Staples 3.60 Real Estate 1.92 Cash 0.44 Financials Energy Health Care Industrials Consumer Discretionary 8.68 Information Technology 8.08 Consumer Staples 6.78 Telecommunication Services 5.06 Materials 4.93 Cash 0.50 United States United Kingdom France 9.88 Japan 3.97 Finland 3.87 China 3.63 Germany 3.56 Netherlands 3.42 Italy 3.07 South Korea 2.90 Switzerland 2.74 Norway 2.11 India 1.98 Ireland 1.65 Canada 1.56 Other countries 4.98 Cash 0.44 United States United Kingdom France 9.43 Switzerland 7.67 Germany 6.08 Japan 3.53 Netherlands 3.36 Norway 2.61 Taiwan 2.45 Spain 2.29 Canada 2.23 Italy 1.91 China 1.84 Australia 1.69 Ireland 1.37 Other countries 2.11 Cash 0.50 Chevron 2.62 Total 2.56 Royal Dutch Shell B 2.48 UPM 2.48 BP 2.46 JP Morgan Chase 2.37 Citigroup 2.35 Pfizer 2.18 Wells Fargo 2.18 Equinor 2.11 Total Total number of holdings: 67 Royal Dutch Shell A (EUR) 3.39 BP 3.06 Total 2.99 Pfizer 2.98 Chevron 2.93 JP Morgan Chase 2.84 Orange 2.79 Equinor 2.61 TSMC 2.45 Novartis 2.44 Total Total number of holdings: 51

3 Invesco Global Opportunities Fund (UK) Managed by Stephen Anness (lead) and Andrew Hall Fund review and strategy Fund performance has been impacted by three key things: stock-specific risks such as Bayer (Bayer s share price fell due to a court case in the US which they lost); exposure to emerging market weakness and by concerns around Brazil specifically, accentuated by political uncertainties and currency depreciation; and by the fund s underweight exposure to the US equity market and US dollar versus the reference index (MSCI AC World index), particularly in the case of technology stocks. We believe that the significant outperformance of the US equity market versus the rest of the world and the US dollar from mid-april this year suggest that investors are still concerned about risks to the global economy particularly in respect of trade. The fund is entirely driven by high conviction, unconstrained stock selection. We seek what we believe to be the best investment ideas globally, building a concentrated portfolio of stocks that we believe has the potential to deliver attractive returns over the long term. Fund risk Although the fund does not actively pursue a concentrated portfolio, it may have a concentrated number of holdings on occasions. Accordingly, the fund may carry a higher degree of risk than a fund which invests in a broader range of companies or takes smaller positions in a relatively large number of holdings. Please also refer to the derivatives risk which applies to this Invesco Global Smaller Companies Fund (UK) Managed by Nick Mustoe (lead) and Global Smaller Companies Group, Henley Investment Centre Fund review and strategy In contrast to longer-term performance, global smaller companies struggled versus their large-capitalisation (large-cap) counterparts over the review period. The small cap market in the US was a bright spot as a result of the tax cuts implemented recently and a strong economy. Our longstanding underweight position in the US, versus the reference index (MSCI AC World Small Cap index), due to our perception of overly high valuations, was a negative for us over the six months. The fund s exposure to the UK was a modest positive for fund performance. We believe that the negative impact of withdrawal from the EU on domestic companies is already aggressively priced into share price valuations. We focus on delivering a globally diversified smaller companies strategy. We invest for the long term: our decisions are based on views from the bottom-up, where we are finding value, and identifying opportunities. This knowledge is paired with a top-down perspective that looks at the macroeconomic factors (growth, inflation, and currencies), valuation and more tactical factors, including capital flows when allocating capital between geographies. Fund risk Smaller company funds are higher risk than funds that can invest in larger company sizes. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities. Please also refer to the derivatives risk which applies to this Global Opportunities Fund (UK) 3.64% Fund Global Smaller Companies Fund (UK) 5.20% Fund Launch date: Current fund value: m Historic yield: 0.79% Launch date: Current fund value: m Historic yield: 0.00% Financials Energy Consumer Discretionary Industrials Health Care 9.35 Information Technology 5.25 United States United Kingdom Germany Hong Kong 6.83 Spain 5.70 Brazil 5.34 Canada 5.16 Russia 2.95 Consumer Staples 5.02 Real Estate 2.69 Telecommunication Services 2.60 Materials 2.20 Cash 0.97 Mexico 2.69 Taiwan 2.63 China 2.21 Bermuda 1.88 Switzerland 1.65 France 0.16 Cash 0.97 Industrials Financials Consumer Discretionary Information Technology Health Care 7.81 Real Estate 6.16 United States Japan United Kingdom France 7.07 Netherlands 4.60 China 3.14 South Korea 2.64 Materials 5.02 Energy 4.66 Consumer Staples 3.43 Telecommunication Services 1.20 Utilities 0.17 Cash 2.63 Italy 2.51 India 2.48 Taiwan 2.14 Hong Kong 1.87 Ireland 1.79 Other Countries Cash 2.63 Rolls-Royce 7.86 Bayer 7.70 National Oilwell Varco 4.33 Standard Chartered 4.21 Volkswagen 3.90 Baker Hughes 3.72 Banco Santander 3.67 Canadian Natural Resources 3.53 Royal Dutch Shell A (EUR) 3.52 Autoliv 3.49 Total Total number of holdings: 35 Eurazeo 0.79 Air France-KLM 0.74 TKH Group 0.73 Iridium Communications 0.67 Take-Two Interactive 0.67 HDFC Bank 0.65 Neurocrine Bioscienc 0.64 Chiba Bank 0.63 Samsonite 0.61 Minebea 0.61 Total 6.72 Total number of holdings: 374

4 Invesco Managed Growth Fund (UK) Managed by Nick Mustoe Invesco Managed Income Fund (UK) Managed by Nick Mustoe Fund review and strategy Performance strength came from our exposure to the UK and Japan. Japan s equity market performance was supported by robust corporate earnings and solid economic growth. Exposure to European and Asian equities detracted from fund performance. In Europe the banking sector has been weak as a result of slower than expected monetary policy normalisation, together with renewed political instability in Italy. Asian equity markets experienced a challenging backdrop of political and macroeconomic uncertainty, including higher US interest rates and escalating trade tensions between the US and China. While some equity markets stabilised after a period of weakness, poor performance came from China and India. We continue to favour equities over bonds. Whilst we are broadly cautious on equities at these levels, we believe that significant valuation disparity in the market means that there are opportunities in certain areas, such as Europe. When looking at the bond markets, we struggle to see where the value is to be found at these very high levels, but prefer corporate bonds. Fund risk Please refer to the derivatives risk which applies to this Fund review and strategy Exposure to European and Asian equities detracted from fund performance. In Europe the banking sector has been weak as a result of slower than expected monetary policy normalisation, together with renewed political instability in Italy. Asian equity markets experienced a challenging backdrop of political and macroeconomic uncertainty, including higher US interest rates and escalating trade tensions between the US and China. While some equity markets stabilised after a period of weakness, poor performance came from China and India. Positive fund performance came from our exposure to the UK and Japan. Japan s equity market performance was supported by robust corporate earnings and solid economic growth. We continue to favour equities over bonds. Whilst we are broadly cautious on equities at these levels, we believe that significant valuation disparity in the market means that there are opportunities in certain areas, such as Europe. When looking at the bond markets, we struggle to see where the value is to be found at these very high levels, but prefer corporate bonds to government bonds. Fund risk Changes in interest rates will result in fluctuations in the value of the fund. Please also refer to the derivatives risk which applies to this Managed Growth Fund (UK) 6.77% Fund Managed Income Fund (UK) (Income share class) 5.44% Fund Launch date: Current fund value: m Historic yield: 0.61% Launch date: Current fund value: m Historic yield: 2.54% Breakdown by underlying funds % Invesco European Equity Fund (UK) Invesco US Equity Fund (UK) Invesco Asian Fund (UK) Invesco UK Growth Fund (UK) Invesco Japan Fund (UK) 8.86 Other (Direct US Equities) 6.58 Invesco Income Fund (UK) 6.56 Invesco UK Strategic Income Fund (UK) 5.18 Invesco Global Smaller Companies Fund (UK) 5.04 Invesco Latin American Fund (UK) 3.33 Invesco UK Smaller Companies Equity Fund (UK) 1.42 Invesco European Opportunities Fund (UK) 1.28 Invesco European Equity Income Fund (UK) 1.04 Invesco Emerging European Fund (UK) 0.40 Cash 4.48 Total number of holdings 14 Please see Breakdown by underlying funds Breakdown by underlying funds % Invesco Income Fund (UK) Invesco European Equity Income Fund (UK) Invesco US Equity Fund (UK) Invesco Corporate Bond Fund (UK) Invesco UK Strategic Income Fund (UK) 8.61 Invesco Japan Fund (UK) 5.55 Invesco Global Smaller Companies Fund (UK) 5.08 Invesco Asian Fund (UK) 5.04 Invesco High Income Fund (UK) 2.37 Invesco Latin American Fund (UK) 2.27 Invesco Asian Equity Income Fund (UK) 1.56 Invesco Global Bond Fund (UK) 1.52 Invesco Emerging European Fund (UK) 0.34 Cash 3.00 Total number of holdings 13 Please see Breakdown by underlying funds

5 Performance profile 1 year 3 years ACR 5 years ACR Invesco Global Equity Fund (UK) Invesco Global Equity Income Fund (UK) Invesco Global Opportunities Fund (UK) Invesco Global Smaller Companies Fund (UK) Invesco Managed Growth Fund (UK) Invesco Managed Income Fund (UK) Performance profile 7 years ACR 10 years ACR Invesco Global Equity Fund (UK) Invesco Global Equity Income Fund (UK) Invesco Global Opportunities Fund (UK) Invesco Global Smaller Companies Fund (UK) Invesco Managed Growth Fund (UK) Invesco Managed Income Fund (UK) ACR = Annual Compound Return. 1 As the Invesco Global Opportunities Fund (UK) changed its management and objective on , performance figures are shown since that date.

6 Important information All fund performance figures are shown in sterling, inclusive of reinvested income and net of the ongoing charge and portfolio transaction costs to 30 September The figures do not reflect the entry charge paid by individual investors. Source: Lipper. Fund portfolio information is as at 30 September 2018 (source: Invesco). The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. The historic yield reflects distributions declared over the past twelve months as a percentage of the mid-market price of the fund, as at 30 September It does not include any entry charge and investors may be subject to tax on their distributions. The ongoing charge on the Invesco Global Equity Income Fund (UK) and Managed Income Fund (UK) is charged to capital. This has the effect of increasing the distribution(s) for the year by the amount of the ongoing charge and constraining each fund s capital performance to an equivalent extent. Membership of the Invesco Global Equity Group can be found at Membership of the Invesco Global Equity Income Group can be found at Membership of the Invesco Global Smaller Companies Group can be found at Derivatives risk The funds may use derivatives (complex instruments) in an attempt to reduce the overall risk of their investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the funds. The Manager, however, will ensure that the use of derivatives within each fund does not materially alter the overall risk profile of the fund. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the ICVC ISA Terms and Conditions, the Annual or Interim Reports and the Prospectus which are available using the contact details shown. Invesco s ISAs are managed by Invesco Fund Managers Limited. Telephone calls may be recorded. Contact us Client services Telephone Facsimile enquiry@invesco.com Administration centre address: Invesco Administration Centre PO Box Chelmsford CM99 2DL Invesco Fund Managers Limited Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK Authorised and regulated by the Financial Conduct Authority 64031/PDF/1018 EMEA7953