I would say
that what we've seen since Trump
has been elected is a game of two halves.
Q4 last year was a strongly momentum driven market
as investors got excited about deregulation and tax cuts
reshoring and and ultimately, Trump's pro-growth narrative.
What we've seen in Q1 is the exact opposite.
Markets have drawn down sharply.
Investors have dramatically reassessed
the prospects for future growth.
Consumer and business sentiment is really weakened.
So it's been the total opposite of what we've seen in Q4.
We are happy to see
that the portfolio
has proved relatively defensive through the drawdown.
And suffice to say that we're seeing some good opportunities
that have been stirred up in the market today.
I think, as ever, we're bottom up stock pickers
and we're delighted to see
strong performance across a variety of sectors and geographies.
I think one of the key themes in
portfolios has been
a focus on those businesses that are able to swim against tides
like tariffs and weakening economic sentiment.
So we're delighted to see some of our more defensive companies,
playing a role in the portfolio and returns thus far, year to date.
Managing geopolitical risk
when it can turn, on its head
from one tweet to another or one day to the other
is difficult,
but what we're trying to do, as ever, is stick to the stocks.
And we've we've done three key things in the portfolio today.
The first is to reassess all of our investment cases
to ensure that none of our companies are materially impacted,
either competitively or from a cost perspective by these tariffs,
so the last thing we want to do
is expose ourselves to unnecessary risks.
The second thing we've tried to do is find companies
that may actually benefit from tariffs.
So a good example of that in the portfolio
today is something like 3i.
3i’s biggest holding is the discount retailer called Action.
Action’s competitors,
I suppose not competitors directly but competitors for supply
are companies
like Amazon and Five Below in the US who've paused orders in China.
This enables action to step into that vacuum
and get some really good deals,
which they can then pass on to consumers,
through a better selection, higher quality products
and lower prices.
So it didn't make sense to us that that company had sold off
so aggressively, since Valentine's Day this year.
And that's a company
that we're very excited about what they can do
come rain or shine, going forward.
The third thing we've done is try to find companies where we think
the impact of tariffs is, overblown, and a good example
of that in the portfolio today might be Canadian Pacific Railway.
This is a railway that connects Canada
through the US to Mexico.
During Trump's, first presidency,
this was a company that actually did very well beating the market.
And we hope that may be what we see this time.
One company that we're excited
to have been able to buy at a discount is EWBC.
East West Bank Corp is quite a niche bank.
They serve, Chinese-Americans in largely in L.A.
and one of the things they do that is very different
to others is bank this community of immigrants.
So if you are moving to the United States from China,
then often you don't have the documentation required for,
some of the other banks to make,
an appropriately priced loan to you.
EWBC are willing to take a more,
tailor made approach for these often high
net worth individuals
so they will see, someone buying a multi-million dollar house,
with a lot of cash,
and take the view that they may not have the documentation,
but the assets and,
the cash flow generation to service that mortgage,
are more than adequate.
So this is a really nice niche bank,
run by a fabulous operator in Dominic Inc.
And we're excited
to have been been able to buy that, single digit PE multiple.
One of the key themes in the markets today and continues to be
AI and I will paraphrase,
Andy Jassy, the CEO of Amazon, in his recent shareholder letter
where he he said something along the lines of,
we're exceptionally excited about the future of AI.
But the reality, the profit generation of that theme
is going to take more than two years, but less than ten.
And for us, as long term investors,
that's something we're we're very,
very happy to align ourselves with.
And the recent selloff in AI related stocks like Broadcom,
we think may well be an opportunity.
So I think it would be fair to say that we're still excited
about this potentially, world changing trend.
AI but I think the
impact it's going to have on companies is more nuanced.
So
if we were to take DeepSeek, for example,
the effect to summarise that that's hard
is to lower the cost of inference.
What that means
is more companies can do more things with AI much more cheaply.
That ultimately is a really good thing for AI adoption
across all sorts of companies.
So we remain as excited as ever about AI
and now that some of the valuations of those companies
that are plugged into that thematic have decreased,
we're reassessing,
where we should be placing our chips, no pun intended,
going forward.
I think I'd leave investors with a few things.
Head of the team, Stephen Anness,
began his career at the end of the.com crash.
He's weathered the Great Financial Crisis. As a team
we have weathered the European Debt Crisis.
COVID, the 22 inflation scare.
Markets do have
periods of sharp, vicious drawdowns, and it's crucial to remain
balanced and cool headed and also nimble
to take advantage of opportunities
that are thrown up during periods of market turmoil like this.
We're going to stick to what we do best, which is bottom up
stock picking,
finding really robust and resilient cash flow generative companies
that we can buy attractive prices run by management teams
we trust to navigate these kind of choppy waters.
We're going to make sure that we keep constructing our portfolios
in a very balanced way.
That's all weather,
and so that whatever the economy and the markets throw at us,
we can remain steadfast in our approach to buying good companies
on sale, run by people we trust.
In this video, Invesco Global Equity Income Fund Manager Joe Dowling shares his thoughts on key questions currently being asked about the market during Q1 2025 and how they will impact the rest of the year.
0:06 - Factors causing the significant change in market sentiment this quarter.
1:01 - What drove the strong performance in Q4.
1:40 - Managing geopolitical risks going forward.
2:26 - Stock example: 3i.
3:14 - Stock example: Canadian Pacific Railway.
3:44 - Example of an interesting stock added to the portfolio in Q1: East West Bancorp (EWBC).
5:00 - Views on the opportunities and risks in AI looking ahead.
6:43 - Final thoughts for investors. Joe closes by discussing the team and how they have weathered previous periods of market volatility. Despite market ups and downs, it's crucial to remain balanced and steadfast in their investment approach to take advantage of opportunities.
Joe Dowling is a Co-Fund Manager for the Global Equity Income & Growth strategy. Find out more about the fund and investment trust solutions, which are managed according to this strategy, below.
In our recent European equities outlook, Georgina Millar and Oliver Collin discuss Europe's market turnaround, Germany's vote, and the improving economic outlook. Highlighting Invesco's active investing targets, specific themes, and the positive outlook for 2025.
John Surplice, Head of EMEA Equities and UK & European Equities Fund Manager, discusses the 2024 performance and 2025 projections for European equities in a detailed conversation with Product Director, Georgina Millar.
Oliver Collin, Co-Head of the European Equities team, addresses the forecast for European equities and explores the factors that could lead to strong performance in 2025.
