Invesco European Equity Fund (UK) Q4 2019 review

Posted by Guest in Fund and industry updates category on 06 Feb 20

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.

Market review

European stock markets rallied over the quarter driven by UK election results (conservative majority and reduced “no-deal Brexit” risks) and US-China trade developments.

Elsewhere in Europe, Pedro Sánchez, leader of the PSOE, has secured a relative majority in parliament. A new coalition government between PSOE and left-wing Unidas Podemos will take office, putting an end to Spain's political stalemate. Meanwhile in Germany, newly elected SPD leaders Esken and Walter-Borjans have decided against an immediate exit from the governing coalition but are pushing for a change in policy - including an investment package.

Performance review

In the three months to the end of December 2019, the fund returned 2.5%, broadly in line with the fund’s reference benchmark, the IA Europe Excluding UK sector, which also averaged a return of 2.5%.*

Past performance is not a guide to future returns.

Positive attribution against the broad market (the FTSE World Europe ex-UK index) was largely driven by Financials, as bank stocks came back into favour – an area where the fund is significantly overweight compared to the market. Of our banking exposure, Banca Mediolanum, Unicredit, BNP Paribas and Caixabank provided the greatest contribution.

Elsewhere, an underweight position in Consumer Staples was a significant contributor to performance. From a stock specific perspective, Ryanair was the best single name in the fund. Share prices have rallied following strong trading results and subsequent analyst upgrades.

At the other end, the majority of negative attribution was driven by an overweight position in Telecommunications. Within the sector, Orange was the greatest detractor as share prices fell under pressure after management announced capital expenditure would remain flat rather than come down as the market was expecting.

From a stock-specific perspective, Renault was the greatest detractor where share prices fell after management revised down profit forecasts. We maintain our conviction in the stock but note that the risk/reward characteristics have changed due to recent developments, as such we have made a portfolio decision to reduce our exposure.

At month-end, Energy stood as the largest overweight sector, followed by Telecommunications and Financials. Meanwhile, Health Care, Consumer Staples and Technology remain the sectors we are most underweight in compared to the broad market. 

Performance (% growth)* Invesco European Equity Fund (UK) IA Europe Excluding UK sector
3 months   2.5   2.5
6 months   2.9   3.0
1 year 12.8  20.2
3 years 13.3  23.6
5 years  54.1  57.8
Standardised rolling 12 month performance  (% growth)* 31.12.14 - 31.12.15 31.12.15 - 31.12.16 31.12.16 - 31.12.17 31.12.17 - 31.12.18 31.12.18 - 31.12.19
Fund  8.1 25.9 12.3 -10.6 12.8
Reference sector 9.3 16.9 17.4 -12.4 20.2
Past performance is not a guide to future returns.

*All data is as at 31 December 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. Reference 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. The IA Europe Excluding UK Sector is a Comparator Benchmark. Given its geographic focus the Fund’s performance can be compared against the Benchmark. However, the Fund is actively managed and is not constrained by any benchmark.

Strategy & Outlook

Given the strong rally European markets experienced in 2019 it would be easy to assume markets are at historical highs – in reality, levels have only just surpassed those seen at the beginning of 2018. As we envisaged at the start 2019, markets have recouped much of the prior year’s losses.

However, what has worked within the market has been very different to what we had been positioned for. There have been clear winners and losers and stock valuations have also become increasingly divisive.

Sectors perceived as traditionally ‘safe’ have been the ‘haves’, whilst the ‘have-nots’ have been economically-sensitive parts of the market which have been left behind.

Where does that leave us in terms of fund positioning as we go into 2020? To our minds, opportunities are to be found in sectors well away from the market’s focus. This is a similar message to the one we gave a year ago, but the logic is still intact, if not actually stronger today. Given the valuation argument is even more powerful now, it is then worth remembering that in Europe for long-term investors there is a strong correlation between the price you pay for assets and the returns you get.

We remain valuation focused in our stock analysis and that has led us to continue to favour the ‘Value’ end of the market going into 2020. We can find a sufficiently diverse range of opportunities to construct portfolios which we believe can offer our investors a very differentiated take on how to make money in Europe.

Investment Risks

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.

Important Information

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.

Important InformationWillis 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.