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.
European stock markets were volatile over the quarter as US-China trade negotiations and Brexit uncertainty dominated headlines and investor appetite. Against this backdrop, performance for much of the quarter was dominated by traditionally ‘defensive’ sectors (Consumer Staples, Utilities, Health Care) with almost everything else left behind.
In the latest European Central Bank press conference, Mario Draghi’s message was that Central Banks cannot support the economy alone, and that there must be more onus on countries (who have the ability) to use monetary tools.
Elsewhere in Europe, Spanish voters will take to the polls again as acting prime minister and leader of the PSOE (Spanish Socialist Workers' Party), Pedro Sanchez, failed to form a coalition before the deadline. Polls suggest that the PSOE are expected to win more seats in November’s general election but may still fall short of a majority. The market impact looks limited at the time of writing.
In the three months to the end of September 2019, the fund returned 0.5%, underperforming the fund’s reference benchmark, the IA Europe Excluding UK sector, which averaged a return of 0.5%.*
Past performance is not a guide to future returns.
Performance over the quarter was really a tale of two halves as market moves in July and August were notable periods of underperformance, followed by a swift reversal in September. As US-China trade escalations intensified, chances of a no-deal Brexit increased and investors worried about the health of the global economy, economically-sensitive equities were sold off and investors rushed into expensive so called ‘safe haven’ assets and stocks. Given our positioning – driven by valuations – these moves weighed heavily on relative performance.
Assessing the quarter as a whole, negative drivers of performance were – relative to the reference benchmark – our overweight Energy and underweight Consumer Staples and Utilities. At the other end, the majority of positive performance drivers were as a result of stock selection within Basic Materials and Health Care.
At month-end, Energy stood as the largest active overweight sector relative to our reference benchmark, followed by Telecommunications and Financials. Meanwhile, Health Care, Consumer Staples and Technology were the largest active underweight sectors.
|Performance (% growth)*
||Invesco European Equity Fund (UK)
||IA Europe Excluding UK sector
Past performance is not a guide to future returns.
|Standardised rolling 12 month performance (% growth)*
||30.09.14 - 30.09.15
||30.09.15 - 30.09.16
||30.09.16 - 30.09.17
||30.09.17 - 30.09.18
||30.09.18 - 30.09.19
*All data is as at 30 September 2019, sourced from Invesco unless otherwise stated. Fund and benchmark 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. Benchmark 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.
Strategy and outlook
We see major risks in some sectors and stocks where the consensus view is, to our minds, dangerously complacent. Simultaneously, we see much more compelling medium-term rewards in parts of the market which are a long way from most investors’ comfort zone.
Sluggish European macro data (we see the glass as half full, most people see it as half empty), worsening Trump-ian trade uncertainties and, for good measure, a couple of reversals from central banks have all fed the unprecedented rally in bond markets this year.
We care about the price we pay for assets for the simple reason that the most consistent long-term returns come from buying when stocks are cheap and selling as they become fair valued. Today, the lack of interest in large swathes of the market means our hunting ground is rich in inefficient prices.
All of which explains why our funds today look the way they do: namely ‘Value’ biased. ‘Value’ does not mean that we own bad companies: if we can find a good quality franchise with improving fundamentals, an undervalued return profile and interesting capital allocation policy, we will happily consider owning it - whatever the sector.
The increasingly prevalent view that financials, industrials and telecoms are verging on the un-investable, whatever their valuation, does not strike us a responsible way to look after our clients’ interests. Nor does ‘Value’ preclude exposure to more defensive sectors: after all, our portfolios have exposure to significantly undervalued, decent quality stocks even in pharmaceuticals and utilities.
Conviction remains 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 excessive 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 with deteriorating earnings data, are they really ‘defensive’? Equally, if stocks are trading at historically low valuations, does that constitute risk or opportunity? Even good companies can be bad investments if the entry price is not right.
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.
Although the Fund invests mainly in established markets, it can invest in emerging and developing markets, where there is potential for a decrease in market liquidity, which may mean that it is not easy to buy or sell securities. There may also be difficulties in dealing and settlement, and custody problems could arise.
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.