Invesco Global Equity Strategy

00:00:00:00 - 00:00:17:23

Siddharth Shah

Hello, and thanks for watching. the first of hopefully many videos, on the global equity core strategy.

I'm joined by Andy Hall, lead fund manager on the strategy, and Emily Roberts, deputy fund manager on the strategy. so let's get right into it.

what would you say with the key things that you learned that have now shaped parts of the process today? and what's driven, do you think the strong performance over the past few years?

00:00:37:10 - 00:01:00:00

Andy Hall

I think I think when I reflect on Q1 2020, for me, it was such a tough period of time that I think it's conditioned us in a certain way. The first one is it's conditioned us to accept that you're going to experience periods of underperformance from time to time, and you're going to make mistakes. And we made a number of mistakes in that period of time, which, as Emily pointed out, we were reflected on in our annual offsite.

and I think that, the learnings from that period of time have really, I think, encouraged the team to think positively about making mistakes. There's always something to learn. There's something that you can improve and iterate with the process. And so those annual off sites that we now do systematically, where we review the decisions we've made in the previous 12 months and try and figure out where could we have done better and why, and improve the process to enhance our future odds of success.

I think that period of time really helped ground us. And, you know, if there was any complacency on our part, there certainly wasn't come the middle of 2020. It's it was a humbling experience.

Emily Roberts

And I'd add for me in particular, I think it really supported why we have, philosophical beliefs about how we manage money and in particular, balance sheet strength.

I had had my career for a period where interest rates were low, and often management teams were criticized for having inefficient balance sheets if they had net cash. And I think when the pandemic came through and you were able to see that, not only did it help you manage through that completely unpredictable risk, the best management teams with solid balance sheets were able to put those to work, deploy capital in a countercyclical way, and really increase the strength of their business and their moat as a result.

So I think for me, that was a big learning through the pandemic

Siddharth Shah

you talked about philosophy. And I think

maybe you could define an improver and explain the difference between that and a compound. and perhaps illustrate with an example of a compound.

Andy Hall

So if, if, if we think about it at a portfolio level, 80 to 90% of the capital in the fund is invested in Compounders and 10 to 20, and what we call improvers, what is an improver? Well, it's it's got one of two characteristics typically it's either a business that we think is going through a specific change that's going to drive improved reinvestment rates of returns in the future, or it's an industry that's going through change that we think is going to drive better outcomes for owners in the long term.

And Ryanair is a good example of what we think is an industry that's repairing in Europe. Consolidation, we think, is going to drive improve returns. for the industry,

Emily Roberts

we're often asked about why we include improvers in the portfolio as well. And I think it's important to say this is a diversified source of alpha for us. We think it helps diversify where the returns are driven from within the fund.

In terms of an example of a compounder, I think one that comes to mind is Dollarama, and that was a business we bought at the end of 2020. And this is a family controlled business, family owned business, and they have a very long term view of how they're going to grow their dollar stores in Canada. So they have a ten year store growth target that also able to continually provide same store sales growth of between 3 and 4% through time.

So this is an organically compounding story that we would see as a compound we can own for a very long time. And indeed, the family are now expanding into Latin America through their Donizetti concept as well. So that I think, is a very good example of a compound

00:04:05:16 - 00:04:10:20

Siddharth Shah

And, you know, we've talked a lot about, sort of risk.

I think we've touched on it, but I think we've not really mentioned your background. So, you know, prior to joining Invesco, you did work for a hedge fund. Can you tell us a little bit a little bit about that experience, that journey and how that's impacted the way you think about risk today? And Emily, maybe you can draw in on some of the experiences and how that's, built into the process.

00:04:32:17 - 00:04:54:09

Andy Hall

Well, I think at a team level, it is really important to emphasize the value in having a team that has diverse backgrounds and experience. But the thing we major on most is cognitive diversity. Having different ways of thinking means you can attack the same problem from different angles and come to a superior decision. So from a team perspective, that that's really important.

in terms of my experience, short selling, I spent four years working for Paul Findlay, who was a very successful, hedge fund manager with a particular passion for shorting, weak businesses, run by untrue, untrustworthy management teams. And so some of the techniques that we used in that four years, for example, looking for hidden financial weakness, looking for underappreciated disruption risk in an industry looking for misaligned incentives, and particularly just analyzing accounts in a way that allows you to find clues as to the health of a business.

We now use these day in, day out. So, so one of the examples we frequently look at is restructuring charges. Often restructuring charges give you clues as an investor into how healthy the business is. If you find a business that's constantly having to restructure, it tells you something about either the competitive environment or some of the capital allocation decisions they may have made in the past.

And so that short selling experience really allows us to think, well, how do we avoid some of the things we were actively looking at in the past in terms of those bear shorts?

Emily Roberts

I think I'd also add that one of the really interesting process, approaches that we have is how we look at the large benchmark weights, and we consider ourselves actively short those positions.

If they're not in the fund or indeed if we're underweight within the fund now, we're perfectly happy to be very differentiated from the benchmark. But we also think it's incredibly important not to bury our heads in the sand and be aware of the risks that we take when we do that. And I think Andy's experience as a short seller means that we're able to translate that into being actively short.

Those positions we have our own models, we do quarterly updates on the businesses that we don't own, and we think that is a very important part of our process that we think is probably quite differentiated as well.

Siddharth Shah

And then the final question is a bit of a curveball. And, you know, let's see if you're ready for it. But what is your secret sauce? What do you think differentiates you from the hundreds, if not thousands of kind of competitors in our industry?

Andy Hall

I think it's really hard to pin down one thing that's different. I mean, last I heard from my head of sales, there's about a thousand actively managed global equity funds out there. And of course, on top of that, you've got the various passive alternatives that clients have on offer. It's a it's a ferociously competitive industry. So I think the first thing I'd say is I think where we're humble enough to accept that it is an incredibly difficult task to sustainably outperform the index and to outperform our competitors. And so I think that humility, the ground of the team and the culture of hard work, the fact that we think of each other and our clients as partners, the fact that we consistently challenge ourselves to improve.

If there was one thing you asked me to boil it down to, it would really be the culture on the team. I think that's what's going to cause us to win in the future.

Emily Roberts

I couldn't agree more, and I think it was very apparent to me when I moved into this team just how special the culture was. And that's not a coincidence.

You have to work incredibly hard to maintain that culture. And I think we spend a lot of time learning from professional athletes or astronauts. NASA we look at other high functioning teams, and we try to understand what it is that makes them high functioning and translate that into our own team. We need to be able to be honest with each other, to be honest and open to admit when we have mistakes.

And you have to have a very specific culture that enables that to be something that you can do without risking your own ego or concerns about your own career. So I really think it's a very deliberate culture that is protected by the whole team.

Andy Hall

I mean, there's one example I can think of earlier this year with John, who pretty well spent about a month writing a research piece on the company in the US.

He published a, a note on it. It was detailed. It was an exceptional piece of research. And it was a it was a it was a buy recommendation. And, so we spent some time analyzing it, challenging it on the team. we spoke to a variety of analysts at the company, and we stumbled across something that John hadn't thought of. He just he hadn't come across it. And we did a number of calls to assess whether we felt that risk was material or not. And we and we decided that it was and I think credit to John. He then updated his his thesis, he updated his model and said, look, I think I've got this wrong. Sorry. And and I think having that, as Emily points out, that safety culture where you can put your hand up and admit you're wrong, that is really important because in this job, you can you can make mistakes.

I think our hit rate is around 65%, going back over the last decade or so. So you have to be conditioned to accept that 35% of the time you're going to be wrong. and so that that really feeds back to the culture.

Siddharth Shah

Thank you. And thank you, Emily, and thank you all for watching. We hope you found that session useful. And if you need more information, please check out our owner's manual or don't hesitate to get in touch. We look forward to hearing from you.