The update below is authored by Invesco and reproduced, with permission, by Willis Owen.
This page should be read in conjunction with the investment risks below.
The first quarter of 2019 has been in stark contrast to the last quarter of 2018. Much of the losses from the prior quarter have been regained as markets have rallied strongly year to date. All sectors of the Eurozone broad market ended the quarter in positive territory, though some areas performed much better than others. At a sector level, Consumer Goods and Technology led the pack, whilst Telecommunications was a key laggard.
The European Central Bank (ECB) revised their guidance to leave interest rates unchanged “at least to the end of 2019”. Following the announcement, markets pushed out the probability of an interest rate rise from mid-2020 to early-2021. Unsurprisingly, banks were hit by this news and lagged the market during the quarter. April, however, has started better.
In the three months to the end of March 2019, the fund returned 4.0%, underperforming the fund’s reference index, the FTSE World Europe Ex-UK Index, which returned 8.0% (£; total return), and also the fund’s peer group, the IA Europe Excluding UK sector, which averaged a return of 7.3%.*
Past performance is not a guide to future returns.
Relative underperformance can be largely attributed to an overweight position in Telecommunications. Telecom names have undone some of their outperformance in the second half of 2018 and this has been a drag to performance.
Consumer Services was also a notable drag to performance. French advertising group Publicis detracted the greatest following weaker-than-expected Q4 results. Despite recent share price weakness, we maintain our conviction in the long-term prospects of the company. Publicis are going through a transformation in expanding their digital presence. Furthermore, some recently-won large accounts should start to add to revenues as the year progresses.
We sold or reduced our lower-conviction banking names such as Société Générale and Bankia, and redeployed funds into higher-quality banks such as ING and BNP Paribas. Both of whom, in our opinion, have stronger business models.
In Energy, some weightings were modified to take advantage of stock-specific performance. In Consumer Discretionary, a longstanding underweight in auto-related stocks was neutralised after a period of underperformance. A new position in Michelin (tyre manufacturer) was initiated, and we also increased our exposure in Renault (French car manufacturer).
|Performance (% growth)*
|| Invesco European Equity Fund (UK)
||FTSE World Europe ex- UK index
||IA Europe Ex UK sector
Past performance is not a guide to future returns.
|Standardised rolling 12 month performance (% growth)*
*All data is as at 31 March 2019, sourced from Invesco unless otherwise stated. Fund and sector average performance data is source: Lipper, Fund performance figures are shown in Sterling, inclusive of reinvested income and net of the Ongoing Charge and portfolio transaction costs. Sector average performance is calculated on an equivalent basis. Fund performance figures are based on the Z accumulation share class. Performance figures for all share classes can be found in the relevant Key Investor Information Document. Sector is IA Europe excluding UK peer group. Reference index and other index information is source: Thomson Reuters Datastream, total return, GB£. Reference index is the FTSE World Europe ex- UK index.
Strategy & Outlook
Despite the strong rally in European stocks year to date, the market is still only just getting back to levels seen in September 2018.
We are starting to see a reversal of the ‘one-off’ issues which impacted much of the macroeconomic data towards the backend of 2018. As the year progresses, we expect this to be further reflected in improving macroeconomic data – some of which we are already witnessing.
Fears of a trade war between US and China had been a major cause of market anxiety in recent months, but today both nations seem closer to signing a deal. Could President Trump point the gun at Europe next? Potentially. But the ramifications of a trade war with Europe are very different given any reciprocal action taken by the EU to sanctions imposed by the US has the potential for much wider economic impacts.
Our conviction is extremely high that following a valuation discipline is the best way to control long-term risk for our clients. As doubt in the market seems to reflect fear rather than reality, we must ask ourselves what constitutes true investment risk? If assets perceived to be ‘low risk’ are trading at all time high relative valuations, are they really ‘defensive’? Equally, if stocks are trading at historically low valuations, does that constitute risk or opportunity?
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 fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its 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 fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.
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.
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.
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 Annual or Interim Reports and the Prospectus, which are available using the contact details shown.
Invesco Fund Managers Limited, Perpetual Park, Perpetual Park Drive, Henley-on- Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
: Willis Owen do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser. The views and opinions contained herein are third party and may not necessarily represent views expressed or reflected by Willis Owen.