Invesco European Equity Strategy

The strategy aims to achieve long-term (five years plus) capital growth. The strategy invests at least 80% of its assets in shares or other equity related securities of companies incorporated, domiciled or carrying out the main part of their economic activity in Europe, excluding the UK.

The European Equities team seek to take advantage of inefficiencies in the market and buy stocks below their intrinsic value. This is achieved through fundamental research, drawing on internal proprietary research, selective use of external research and extensive company contact. This approach places a strong emphasis on valuation, a key determinant of future returns. The investment team takes a long-term approach to investing, typically around a five-year investment time horizon, which enables it to take advantage of any valuation anomalies.

The team believes that market inefficiencies typically derive from three interlinked sources:

• Markets often overreact by placing undue focus on near-term issues
• Market expectations are often overly influenced by the extrapolation of current trends
• Markets respond to momentum and other technical drivers as well as to fundamentals

By not favouring any one particular investment style, the investment team can actively target the best mix of individual risk/reward opportunities in the market - at any point in time in whatever stock, sector or country they are to be found. This flexible approach aims to deliver consistent, positive performance under most market conditions.

The investment process comprises four key elements which deliver the information the fund managers need to make decisions when constructing the portfolio.

Idea generation
Using a flexible approach to sourcing ideas internally from within the team and Henley-based investment colleagues, together with external sources.

Fundamental research
Combining internal proprietary research with extensive company contact and external research providers. The majority of the team’s research is bottom-up stock specific, with a strong focus on valuation, incorporating its perception of the macro outlook.

Portfolio construction
Building a portfolio of companies that offers the best mix of stock specific opportunities at any point in time. As well as assessing the potential for upside for each stock, the associated risks are also considered – these factors and the impact of any changes on the shape of the portfolio will be important in determining the overall size of that holding.

Valuation monitoring
Continuously monitoring individual positions in the portfolio, with a focus on the key structural, cyclical and company specific drivers.

Assessing and monitoring risk
Applying a multi-faceted approach to risk management throughout the  investment process to ensure that risks are fully understood and appropriate.

Our focus as active fund managers is on finding mispriced stocks. We are open to buying companies whose qualities and future potential are not properly reflected in their share prices. Equally, we look for companies whose willingness and efforts to change have yet to be recognised by the market. Correctly anticipating change for the good and the scope for market perceptions to catch up with reality can generate strong investment returns. The key is identifying the issues and focusing on the path to improvement.

The same principles apply to how we see ESG: many of its key aims and principles are well aligned with our long-term investment focus and engagement with the companies we own. Investment opportunities can arise from market dislocation related to ESG, as they can from other share price drivers. 

Getting to the right answer involves more than just focusing on information provided by the ESG rating agencies. They provide some useful insights and information as to what the key ESG issues are and how they are viewed today. We will consider such research but the proprietary research and analysis we carry out, to try to anticipate how a company’s ESG strategy evolves in the future, will be more important to us.

Our overall investment process composes of five major components. We go through in detail how ESG is integrated in our process: download the full paper to learn more.

Read the team’s quarterly ESG engagement report

Valuation-led strategy
Investments are purely valuation-led, with the weight of each portfolio holding driven by its risk-reward profile, allied to the overall portfolio diversification. The strategy rests on rigorous fundamental analysis and company valuations, combined with close scrutiny of the prevailing macroeconomic environment and likely future trends, to identify what the team believe to be the best investment opportunities in Europe.

Experience and track record
Benefitting from the team’s extensive knowledge of local markets and companies in identifying attractive opportunities, the strategy has a solid, long-term track record (launched in 1986).

Active approach
With a typically high active share and no preconceived style bias, the team are agnostic with regards sector or country positioning. They seek to take advantage of valuation anomalies through bottom-up stock selection, while adapting the strategy according to the macro-market environment and risk-return assessment

Focus on European recovery
After years of depressed activity, the economic outlook in Europe remains robust. With valuations remaining attractive in the team’s view, the region is currently offering very interesting opportunities.

We summarise the key themes that should drive structural change and growth across Europe for many years to come: social inequality, climate change and digitalisation.

The strategy is managed by John Surplice, Head of European Equities and James Rutland, Fund Manager, two experienced investors in the European equities space.

In the management of the strategy, John and James are supported by the Henley Investment Centre’s CIO, Stephanie Butcher, and other members of the wider European Equities team that includes four European Equity fund managers.