Manager perspective and outlook
- In a reversal from the third quarter, global equities rebounded in the fourth quarter. Previous concerns about interest rates staying “higher for longer” abated, and investors focused on possible interest rate cuts during 2024. In this environment, most major asset classes and sectors performed well, with US stocks outperforming international stocks and growth stocks outperforming value stocks. The energy sector was an exception, ending the quarter in negative territory, hampered by falling oil prices. Developed global equities outperformed emerging market equities. Eurozone and UK equities delivered positive returns, but the UK lagged due to strength in its currency and greater exposure to weaker sectors, including energy.
- Despite a general increase in investor confidence, we believe it is important to acknowledge that monetary policy remains uncertain and a soft economic landing is not guaranteed. Additional potential risks in 2024 include ongoing geopolitical tensions and elections around the globe. Following robust returns from global equities in 2023, these potential risks may cause market headwinds and may increase volatility as investors look for confirmation of a positive market transition. Consequently, we believe equity investors may focus on the type of high quality and traditional investment fundamentals that are central to the fund's balanced EQV investment philosophy.
Portfolio positioning
During the quarter, we initiated a position in the following stock:
STMicroelectronics (STM, Financial) is a large semiconductor chipmaker in Europe. The company is anintegrated device manufacturer (IDM) with a large portion of sales coming from automotive and industrial end markets where increased use of semiconductors creates structural tailwinds for STMicroelectronics. We initiated a position as shares have been trading at a discount to history. We believe the company is an improving, quality franchise with attractive exposure to long-term semiconductor growth and an attractive opportunity for patient long-term investors.
We added to several of the fund's existing positions, including Swiss multinational health care company Roche (XSWX:ROG, Financial), French information technology (IT) company Capgemini (XPAR:CAP, Financial) and Swiss global luxury goods company Compagnie Financière Richemont (XSWX:CFR, Financial). Richemont was new to the portfolio in the third quarter, and we further increased the position as we have found the valuation attractive relative to long-term growth potential.
We sold the following securities:
Carlsberg (OCSE:CARL B, Financial) is a Danish brewing company. Its shares have underperformed due to growthconcerns. Western markets have seen a variety of topline and gross margin pressures during the year and key emerging market growth trends have moderated. We exited the fund's position and invested the proceeds in other stocks that we believe have better risk-adjusted return potential.
Metropole Television (XPAR:MMT, Financial) is a well-run French media company. The company has faced difficultheadwinds as a predominantly free-to-air TV and radio broadcaster that is also supervised by an overtly tough government regulator. We saw a lack of short and medium-term catalysts that could trigger gains in the stock's price.
SBM Offshore (XAMS:SBMO, Financial) is a Dutch energy company. SBM is still regarded as the best-in-class builder ofoffshore oil floating production storage and offloading vessels (FPSOs). However, the stock has continued to suffer from the complexity of its equity story, perception of high leverage and rising interest rates.
We trimmed fund positions in several other stocks, including global consumer internet group Prosus (XAMS:PRX, Financial), British industrials company DCC (LSE:DCC, Financial) and Swedish industrials company Sandvik (OSTO:SAND, Financial).Wetrimmed Sandvik due to rising concerns around the company's growth outlook.
Performance highlights
Strong stock selection in the financials sector was the largest contributor to relative return. Stock selection in industrials and health care added to relative results. An overweight in industrials and an underweight in health care were beneficial as well. On a geographic basis, stock selection in the UK, France and Italy contributed to relative return.
Conversely, stock selection and an overweight in consumer staples detracted from relative results. Fund holdings in the IT sector outperformed those of the benchmark index, but an underweight in the sector hampered relative return. Having no exposure in the utilities sector negatively affected relative performance. Geographically, stock selection in Switzerland and Denmark detracted from relative return, as did exposure in Hungary.
Contributors to performance
Below are the largest contributors to absolute return for the quarter:
DCC's recent results showed continuedstrong execution and cost control in its health care and technology divisions. The market was also encouraged by the company's energy-related acquisitions, which bolstered its scale and network effects. As previously mentioned, we trimmed the fund's holdings to manage the position size.
ASML (ASML, Financial) is a Dutch global leader in thesemiconductor lithography industry. ASML has benefited from rising expectations for spending on wafer fab equipment (WFE).
Investor (OSTO:INVE A)is a Swedish investment andholding company that has benefited from strong performance of the company's underlying equity stakes.
Detractors from performance
Below are the largest detractors from absolute return for the quarter:
Reckitt Benckiser (LSE:RKT) is a British consumerstaples company that has been experiencing growth headwinds from US infant formula where a key competitor is returning to the market after a product quality misstep. Additionally, there have been cyclical headwinds for the company's cold and flu business. We do not believe these cyclical pressures are representative of the long-term growth opportunity.
Carlsberg is a Danish brewing company, andas previously mentioned, we liquidated the fund's position during the quarter.
Haleon (HLN) is a British multinational consumerhealth company with notable brands, including Sensodyne toothpaste, Advil and Centrum vitamins.
Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit invesco.com for the most recent month-end performance. Performance figures reflect reinvested distributions and changes in net asset value (NAV). Investment return and principal value will vary so that you may have a gain or a loss when you sell shares. Returns less than one year are cumulative; all others are annualized. Performance shown prior to the inception date of Class R6 shares is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Index source: RIMES Technologies Corp. Had fees not been waived and/or expenses reimbursed in the past, returns would have been lower. Performance shown at NAV does not include the applicable front-end sales charge, which would have reduced the performance.
