Identifying strategies and trends with long-term growth potential
Here's the dilemma in a nutshell: There are 48,000 publicly traded companies on the world's stock exchanges1 — how can investors target the ones with the greatest potential for long-term growth?
It's a question that takes on even more importance as bull markets age, traditional indexes may not deliver the returns of the past, and growth becomes harder to find.
4 compelling paths to explore
Value stocks: companies "on sale", relative to their long-term value.
As the chart below shows, value stocks have delivered higher returns with less risk than growth stocks over the past 40 years. In recent years, however, value stocks have been out of favor,2 which we believe creates a potential opportunity for attractive returns over the next full market cycle.
Sources: Bloomberg, L.P. and FTSE Russell. Data from 12/29/78 – 12/31/18. Based on the Russell 1000 Value Index (which measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values) and the Russell 1000 Growth Index (which measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values). The Russell 1000 Value Index/Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. Past performance does not guarantee future results. An investment cannot be made directly in an index. Risk measured by standard deviation. Standard deviation measures an index's range of total returns in comparison to the mean. Sharpe ratio is calculated by dividing the amount of performance a portfolio earned above the risk-free rate of return by the standard deviation of returns; a higher Sharpe ratio indicates better risk-adjusted performance.
Dividend-paying stocks: companies returning capital to shareholders.
Over the past 30 years, dividend-paying stocks have outperformed non-dividend-paying stocks, with dividend growers and initiators leading the way.
Source: 2018 Ned Davis Research, Inc. Investments cannot be made directly into an index. All stocks were categorized by the following methodology for total return of each 12-month period over the course of the period from 3/31/1972 – 12/31/2018: Dividend Cutters and Eliminators represents stocks in the S&P 500 that have lowered or eliminated their dividend; Non-Dividend Paying Stocks represents non-dividend paying stocks of the S&P 500; Dividend Payers With No Change represents all dividend-paying stocks of the S&P 500 that have maintained their existing dividend rate; All Dividend-Paying Stocks represents all dividend-paying stocks in the S&P 500; and Dividend Growers and Initiators represents all dividend-paying stocks of the S&P 500 that raised their existing dividend or initiated a new dividend. Past performance does not guarantee future results.
Global growth themes: trends that may fuel future growth.
Here are 3 trends we believe can drive long-term growth and opportunities, across industries like Social Media, Gaming, Travel, Medical Devices, Big Data and Luxury Goods.
- Increased wealth: More than 140 million people enter the middle class each year, and they have money to spend.3
- Aging population: Between 2017 and 2050, the number of people over 60 is expected to double, and their spending habits are changing.4
- Technological innovation: The pace of tech innovation is disrupting every type of industry and changing our daily routines.
Smaller stocks: broadening the range of opportunities
The S&P 500 is a market-cap-weighted index, which means the biggest companies have an outsized footprint on results.
Relying solely on this type of benchmark minimizes the growth opportunities within the smaller end of the S&P 500 — and excludes the mid-cap and small-cap stocks that aren't in this index at all.
For example, the equal weighted version of the S&P 500 — in which each of the 500 stocks gets the same weight — has outperformed the market-cap-weighted version. The chart below shows that a $10,000 investment in the S&P 500 Index on Jan. 31, 2003, would have grown to $43,407 on March 31, 2019. The same investment in the S&P 500 Equal Weight Index would have grown to $56,301 over the same period.
Growth of $10,000: Equal weighting has come out on top
Source: FactSet Research Systems, as of March 31, 2019. Past performance does not guarantee future results. An investment cannot be made directly into an index. Index returns do not represent fund returns.
Strategies for targeting growth
At Invesco, we have an array of strategies that align with these four paths.
|Invesco Comstock Fund (ACSTX)||An actively managed mutual fund that seeks total return through growth of capital and current income. The fund seeks to outperform by making early and patient investments in large companies whose true value isn't recognized by the market.|
|Invesco Growth and Income Fund (ACGIX)||An actively managed mutual fund that seeks total return through growth of capital and current income. The fund seeks large, value-priced companies that the team believes are poised to benefit from positive business developments.|
|Invesco Diversified Dividend Fund (LCEAX)||An actively managed mutual fund that seeks long-term growth of capital and, secondarily, current income by employing a total return approach, emphasizing capital appreciation, current income and principal preservation.|
Global growth themes
|Invesco International Growth Fund (AIIEX)||An actively managed mutual fund that seeks long-term growth of capital by investing in a diversified portfolio of reasonably priced, quality international companies with strong fundamentals and sustainable earnings growth.|
|Invesco Oppenheimer Developing Markets Fund (ODMAX)5||An actively managed mutual fund that seeks capital appreciation and typically invests in emerging and developing market stocks.|
|Invesco Oppenheimer Global Opportunities Fund (OPGIX)||An actively managed mutual fund that seeks capital appreciation and typically invests opportunistically in both US and foreign stocks.|
|Invesco Oppenheimer International Diversified Fund (OIDAX)||An actively managed mutual fund that seeks capital appreciation and currently invests in four underlying products managed by the Invesco Oppenheimer Global and Emerging Markets Equity teams.|
|Invesco Oppenheimer International Growth Fund (OIGAX)||An actively managed mutual fund that seeks capital appreciation and typically invests in a mix of foreign growth stocks.|
|Invesco S&P 500 Equal Weight ETF (RSP)||This ETF seeks to track the S&P 500 Equal Weight Index, which gives an equal weighting to each component of the S&P 500 Index.|
|Invesco Oppenheimer Discovery Mid Cap Growth Fund (OEGAX)||An actively managed mutual fund that seeks capital appreciation and typically invests in mid-cap US growth stocks.|
|Invesco Oppenheimer International Small-Mid Company Fund (OSMAX)5||An actively managed mutual fund that seeks capital appreciation and typically invests in international small- and mid-company stocks.|
1 Source: World Federation of Exchanges as of April 2019
2 As of March 31, 2019, five-year annualized returns for the Russell 1000 Growth Index were 13.50%, compared to 7.72% for the Russell 1000 Value Index.
3 Source: "The Unprecedented Expansion of the Global Middle Class," Global Economy at Development at the Brookings institute, February 2017. Most recent data available.
4 Source: United Nations, "World Population Ageing: 2017." Most recent data available.
5 The purchase and exchange of Fund shares is restricted, subject to certain exceptions. Please see the prospectus for further information.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
The risks of investing in securities of foreign issuers, including emerging markets, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index.
Investments focused in a particular industry or sector, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
Invesco S&P 500 Equal Weight ETF is non-diversified and may experience greater volatility than a more diversified investment.
Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer's board of directors and the amount of any dividend may vary over time.
Diversification does not guarantee a profit or eliminate the risk of loss.
ETF Shares are not individually redeemable, and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000 Shares.
The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the Fund.