Danielle Singer:
Hello, I'm Danielle Singer, Head of Wealth Management Platforms for Invesco, and I'm very excited to bring you what is now the third episode of Rethink Portfolios, a new series from the Greater Possibilities podcast. This show will go inside the decision-making process of portfolio managers, where we will bring you in-depth conversations that explore how our experts manage risks, identify opportunities, and navigate these ever-changing markets.
Our guest today is Kevin Holt, Chief Investment Officer and Senior Portfolio Manager for Invesco's US Value Equity Team. I'm very excited to have this conversation with Kevin today. As an active equity manager, Kevin has to navigate rate volatility, macro uncertainty, and technological disruptions that are transforming businesses and industries. And of course, as a value manager, he has to determine the difference between undervalued opportunities and the dreaded value trap. So let's welcome Kevin to tell us how he approaches these challenges.
Welcome to the podcast, Kevin.
Kevin Holt:
Thank you, Danielle. Good morning.
Danielle Singer:
So let's start big picture. For investors who may be less focused on style boxes day-to-day, how would you explain the role of US value equities in an overall portfolio context?
Kevin Holt:
Yeah, I think what we're trying to do is add numerical analysis, which hopefully protects your downside, while we're looking at stock selection and portfolio construction. Whereas a growth investor is going to be more thematic, more interested in the concepts, we're going to be more interested in saying, okay, we believe in this concept, but what are some of the numbers and assumptions we can put around it to where we can actually quantify the valuation of the stock and quantify what we think could be the downside and the upside in the stock. So really trying to put a conservative bent on your portfolio on that portion that is value oriented and try to round out your portfolio so you're not assuming too much risk/return within your overall asset allocation.
Danielle Singer:
And one potential challenge for value investors today like yourselves is that really value looks different because companies are creating value through things that you can't maybe as easily see or touch like ideas, data, technology. So how do you think about defining value today given that? And maybe talk about where you're finding some of the most compelling opportunities.
Kevin Holt:
Yeah, so I like to challenge the team and I think we're always learning in this business. So two or three years ago, I go to this annual think tank conference in August. And AI really started to be a theme. And ironically, this was at an energy conference and the last two years have turned into AI as 80% of the conference and energy is a actually a very small part of the conference. So I think it's constantly challenging ourselves. But at the end of the day, any investor, we are paid to predict the cash flows for the next five years of these individual companies. We're bottom-up, we're not top-down. So you have to understand how the world is changing. And I think we're in a period where this is really a once in a lifetime phenomenon. I think this makes the internet look small, which is hard to think about.
But I put this with the railroads, then industrialization of America, and then the launch of the mainframes. Again, this is a once and probably a 40-, 50-year phenomenon in terms of, I think, the impact on the overall, not only economy, but on individual companies. There are certain industries where we think things are less affected. So looking at bank stocks, for instance, we can look at traditional trading ranges, we can look at traditional valuations and pretty much hone in on the bank stocks. Obviously, there's some things always changing, deregulation, things like that, which are beneficial at this point in time. But when you're looking at the technology stocks and if you think about this, technology, a part of this innovation started say 12, 13 years ago with Google and Meta. They, I always like to say, graduated from the technology sector into communication services.
They're advertising companies, for all practical purposes. That's what they do, at least at this point. And that's how they monetize themselves. A lot of the industrial companies now are plays on AI and a lot of the end markets that they sell into, whether it's cooling for data centers, construction for data centers, these are end markets you have to think about and what are the size of these end markets given it's a once-in-a-lifetime phenomenon. So it's really challenged us, as value investors, to say, okay, certain areas of the market really haven't changed and we can use our traditional framework in this. And there are others I'll throw out one just for instance, a semiconductor.
The total adjustable market for semiconductors when it was just PCs 30 years ago, it's far different today that these are now being used in data centers and will be used on a continuous basis in data centers. So the amount of memory that we need is going to be vastly different than what it's been the last 25 years. And that needs to go into our models and into our cashflow assumptions to determine if a stock is cheap or if it's expensive.
Danielle Singer:
The AI conversation is certainly everywhere. And I think you've probably answered this, but when we think about that narrow set of mega cap leaders that have really led the markets over the past several years, is this then, based on your comments, a durable structural shift in market leadership? Or is there some elements, are there some elements of potential late cycle concentration risk?
Kevin Holt:
Yeah, it's really a fascinating time. I honestly probably would've answered this question differently 24 months ago than I am right now. Because if we look at the hyperscalers, which is really what we're talking about, the Metas, the Google, stocks like that, within the advertising realm, it was really Google and Meta. Well, now you have other people getting into the game of AI, Anthropic, various other people that we're looking at, ChatGPT. It's just a variety of companies. And there will likely be a couple winners and there'll be a lot of losers.
So what we've seen over the last 24 months is the return on invested capital and, at the end of the day, that's a driver for most value people, is we want to make sure that when somebody is spending money that they're getting a return on that incremental dollar. And what we've seen out of the hyperscalers is the return on invested capital has dropped dramatically for a lot of those companies because they're betting on the future, which has just made them more risky investments as we move forward. And those happen to be the largest-cap companies. So I do think we're seeing a spreading out of the market. I think there's a lot more risk at that high-end and you have to account for that risk because the return on invested capital is coming down, so the valuations those companies deserve, say, 24 months ago are different today. And then we need to make a judgment in our five-year assessments, whether those returns will stabilize, go back up, go down to reach our intrinsic value estimates.
Whereas the bricks and mortar guys, or the picks and shovels, as we like to call them, those are much more predictable businesses in terms of we know what the data center build out looks like for the next five years. They're going to be positive ROIC investments and/or business propositions for these companies, a lot of industrial companies and/or energy companies for that matter. So that's probably a little bit better way to play it. At this point I think feeds into a broadening market over a period of time.
Danielle Singer:
We're going to stay in the weeds on value investing, but first you mentioned growth investing. So you're a value manager, but how do we think about value and growth in a portfolio? Is it an either or decision for investors or is there really a role for both?
Kevin Holt:
Yeah, so I would say, one, I'll talk the Invesco book a little bit. But I think as a value investor, having access to growth investors who think differently and are probably pretty good at the cutting edge of innovation is helpful because it helps us challenge us as if we were just strictly a value firm. I think sometimes you can get a little too narrow-minded in your view. So I'll say that.
I'll say, two, I'm a big believer in diversification. I think there's a role for innovation, there's a role for new concepts, and growth investors are much better at that. And then again, you want to have that stability, particularly with inflation having ticked up a bit now, which, historically at least, puts pressure on valuations, you want to have that value balance in the portfolio that you can look at to say, okay, I have the aggressive nature of the growth, but I also have the conservative nature of value to balance things out in the portfolio.
And I think both play a key part. And frankly in my personal investments, I have both and I think that's a responsible way to go about it. And then you can overweight or underweight depending on what your leanings are at that particular time.
Danielle Singer:
I think those are great points and I want to continue talking about something that is facing all probably active equity managers today, whether you're on the growth or the value side, and that is the persistent rise of passive investing. Where might you see the clearest inefficiencies today as an active manager and are there specific conditions that may favor stock picking from active managers like yourselves?
Kevin Holt:
Yeah, I'll be honest with you, I think it's a lot easier conversation going against value passive index as opposed to growth because as you've alluded to at the beginning, the growth indicies in particular that are more weighted to these technology stocks have become very top-weighted, which it's very challenging when you have a very narrow market to beat those indices. On the value side, it's a little bit more of a broad conversation. And I think when people look at the Russell 1000 Value, it has a very high reliance on price-to-book value in terms of its constitution.
And we would argue, outside of deep cyclicals and/or banks, price-to-book really doesn't have a role historically in defining value across different industries and sectors. So for us, I think it's a lot easier and I would expect our teams to be able to beat, over 3-, 5-, 10-year periods, beat the passive value indices regularly because honestly, up until recently it had really over or really overweighted cyclical areas and underweighted technology. That appears to be an anomaly over the last year because of some of the semiconductors that were low P/E and pseudo low price-to-book, they've increased, but now they're going down again in the RLV.
So if you believe in technology over time, typically the RLV will underweight it. And I think we've had a strong ability to be very successful given our multidimensional approach to valuation.
Danielle Singer:
So that's a perfect segue because I think one of the biggest concerns investors often have is really the difference between what is a mispriced company and a stock that's cheap for a good reason. So continuing on talking about some of these valuation metrics, how do you distinguish between the two?
Kevin Holt:
Yeah. So I think, starting off when looking at value traps, which I think where we're going here, is starts fundamentally primarily, and that is, okay, the stock is selling at a discounted valuation relative to history. And then it's up to us as fundamental investors to determine, okay, what are those three or four key issues that investors are concerned about, say on a 3- to 5-year time horizon and why is this selling at a discounted valuation? So it's really understanding the fundamentals of the business and understanding why it's trading like it is that I think ultimately leads you in the direction of being able to identify value traps.
With that said, we have implemented things across the different teams over the last 10 years to say, okay, are we being honest with ourselves? Are these issues drifting more than maybe what we think they are? And then it'll assess strategic reviews. Each of the teams has their own way of going about this. But if the stock's underperforming by what we think is outside an acceptable amount, we will do a strategic reassessment of those three or four key issues and then the fundamentals to say, hey, have things changed? Now I'll give you one example right now. Across the cable stocks, which are video, but really no one owns cable for video, quite honestly, I think we all own it for our internet primarily. But then the key becomes the phone companies have built out fiber more aggressively over the last few years. And on a very timely basis, SpaceX with Starlink has launched satellite internet, which we can get on United flights now, you can stream video on it.
The end of the day is we knew it was a mature business, but everyone has lost pricing power. So it was a very inexpensive stock. We thought those stocks could be good investments. They've lost pricing power. We've acknowledged that because it was one of our three or four key issues, quicker than we would've thought. So we reduced our positions in those. And again, it's understanding why you own something in terms of trying to identify value traps.
I like to turn it, and you didn't ask this question, but I'm going to offer it up anyway. What is a growth trap, which is something that I coined five years ago. And in this changing environment that you highlighted, it's important for value investors not to become too reliant on history in these areas that are changing. And there are two sectors, technology, which we hit on earlier where with AI things are changing. And then healthcare, which things have always changed, particularly in the pharmaceutical industry, you have patent expirations, you have pipeline products. It's vitally important that we look at the next five years projections for these companies and we can use history as a guide. But in those two sectors in particularly, it's very important that we hone in on each of the next five years what projected cash flows are because they can be, and at this point in time, are very different than what history has shown us.
Danielle Singer:
I like this. You've coined a new term, growth trap. Maybe just one last thing to round out the conversation on value and valuation specifically. And I think you maybe answered this talking about the fundamental work that you do beyond this. But are there areas where valuations are still difficult to justify? Are there areas where investors may be overlooking some compelling value opportunities? Where's the story not as clear?
Kevin Holt:
Yeah, I think there are always pockets in technology that don't necessarily generate cashflow. But they're very conceptually interesting. A couple stocks historically that just have not fit our process and probably never will a Tesla or a SpaceX. They just don't, even if we project out five years, we can't project the cash flows to get to a level where we like to say the market cap of the stock or the enterprise value, if you include the debt, are selling at an acceptable level relative to the amount of cash flow that they're generating. So I would say that's one. With that said, I think 90% of the technology stocks periodically do hit our radar. And as we predict things out and we project our cash flows, I think they can be interesting. So I'll say that on the more expensive stocks.
Things that particularly look interesting right now for us is healthcare. I'm pretty much looking at any time period, you can go 10, 20, 30, 40 years, healthcare as a sector is trading at the lowest relative P/E ratio that it ever has. So then you have to ask yourself, so there's a lot of negative discounted in. So we ask ourselves, are we going single payer system? I think that's something you always have to ask yourself. Have the return on invested capital profiles based on today's cash flows, assuming we don't go single payer, changed demonstrably? Which they have not. But I think a lot of investors who look for innovation used to look at healthcare and technology. I think a lot of those dollars have gone to technology recently. So healthcare has become very inexpensive. You do have government reimbursement not only here, but in China that affected some of the fundamentals of companies. So I think they're selling for extremely low valuations right now. But when you can buy the highest quality companies in industry groups across healthcare, which is frankly what we're in the midst of right now, I think that's very attractive when we have a time arbitrage 3- to 5-year time horizon on our side. And these are very attractive businesses with very attractive cash flows and very attractive return on invested capital profiles.
Danielle Singer:
I love that. I think we'll zoom out a little bit now. Let's try to put it all together for our listeners and discuss portfolio construction. So with the volatility in markets, macro uncertainty, the technological disruption that we've spent a lot of time talking about, how do you balance conviction and risk to build a portfolio that is opportunistic, that tries to drive added return for investors, but is also resilient across different market scenarios? Because at the beginning, you touched on the fact that a lot of value investing really is about managing that downside risk.
Kevin Holt:
Yeah. And I think a lot of it comes into our assessment of cash flows and conviction, but also understanding. And I think the reality is probably over the last 10 years, the markets have become extremely volatile. And geopolitical risk I think is up quite a bit. I think we're starting to, post-COVID ,feel the effects of what was a very contrived monetary policy post-global financial crisis that allowed us to get out of the global financial crisis, but probably created some long-term inflationary tendencies that we're now dealing with across the economy that was inevitable. So that's created a lot of volatility I think within those two factors across sectors. So I think we've noted that in our taking. Still, I always say we can take bigger bets than 90% of our peers. We don't need to take bigger bets than 100% of our peers.
So across the different portfolios, we implement different risk guards. But we are constantly looking at what our under overweights are to certain sectors. And I think in industry groups, if you think about one of the conversations we've had recently is you think about technology, used to have a very high correlation within the industry groups. Software and AI are anti-correlated. So now we have to even peel that onion back a little bit further when we're looking at tech because not all tech is the same. Used to be or used to be have a very high correlation, now it doesn't. So we are monitoring our risk probably tighter than we have historically given a lot of the things that we just discussed. And I think it's important that ultimately if we can generate some return off sector selection, that's great, but we want the primary attributes to be stock selection within that framework.
It's hard to predict where the world's going on a daily basis. If you found that person, I'd love to meet them, but we have not. So we will take sector bets like in healthcare right now, but we're not going to go extreme. So we are trying to control risk and respect a lot of the volatility that's been inherent in the market over the last 10 years.
Danielle Singer:
So given all of that complexity that you just talked about, are there additional important questions that you think financial advisors or investors should be asking managers in this environment?
Kevin Holt:
Yeah, I think it's important to understand. Our investors, and I talk a lot about this within the team and actually even at the firm level here with the other CIOs, intellectual honesty is something I think that we all need to be very aware of. And the reality is, whether it's volatility, which we just hit on, and/or the proliferation of AI, the world is changing. And in value land, we all like to look at historical valuations, historical attributes. I think for your value managers right now, and I would look at your 3- and 5-year numbers on your value managers right now, are they being intellectually honest with what's changing in the environment, what's changing in the world to say, okay, what used to happen in X, Y, Z semiconductor stock, the past isn't necessarily indicative of future cash flows and future returns. So I think within value portfolios in particular, do the numbers show that these teams are being honest with themselves in terms of the world is changing. And you want to have your investment discipline and that does not change.
Our investment process does not change, but we have to realize if the cashflows are going to change based on changing fundamentals, we need to be out in front of that. And we always say it's where the puck's going, not where it's been. And I think value guys more than growth guys can fall into complacency on that issue. In my role as CIO, and I always say I'm air traffic controller, trying to make sure that all the teams are looking at what the future looks like, not just what the past looks like.
Danielle Singer:
I think that is sage advice. I think we're about ready to wrap up. So what is one takeaway you'd want our listeners to remember from this conversation?
Kevin Holt:
Yeah, I would say that value isn't necessarily one metric. So post-COVID, we had a lot of clients who hadn't been interested in value in a number of years and we explained our process where in growth industries we're looking at cashflow and then more cyclical industries, we will look at book value, i.e. basic materials and financials and they're like, well, if you're a value investor, you only look at price-to-book. And I'm like, that price-to-book really doesn't work when you're looking at growth of your industries, i.e. consumer discretionary, technology. Cashflow historically has a relevancy.
So you need to make sure that you have a dynamic process that basically works through the test of time when you're approaching investing. And if anyone has any single metric, they'll probably be good for short periods of time because those metrics are more apt to work. If you're a price-to-book investor, when financials work or when you go into an upturn, they work. We want to be able to work over all cycles.
Danielle Singer:
Well, I think it is great timing certainly that we had you today as our speaker. Value investing only seems to be getting more complex. So Kevin, it has been an absolute pleasure. Thank you and catch you all next time.
Kevin Holt:
Thank you so much, Danielle.
Important information
You've been listening to Invesco's Greater Possibilities podcast, Rethink Markets.
The opinions expressed are those of the speakers, are based on current market conditions as of June 9, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
Diversification does not guarantee a profit or eliminate the risk of loss.
References to individual securities are for illustrative purposes only and are not intended to be, and should not be construed as, recommendations to buy, sell, or hold any security.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.
Artificial intelligence (AI) technology companies are sensitive to specific risks such as small markets, business cycle changes, economic growth, technological progress, obsolescence, and regulation. These companies may have limited products, markets, resources, or personnel, making their securities more volatile, especially for smaller start-ups. Rapid technological changes can adversely affect their results. AI companies often rely on patents, copyrights, trademarks, and trade secrets to protect their technology, but there's no guarantee these protections will be sufficient. Significant research and development (R&D) spending doesn’t ensure product or service success.
Businesses in the energy sector may be adversely affected by foreign, federal, or state regulations governing energy production, distribution, and sale as well as supply-and-demand for energy resources. Short-term volatility in energy prices may cause share price fluctuations.
The profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. These businesses often operate with substantial financial leverage.
The health care industry is subject to risks relating to government regulation, obsolescence caused by scientific advances, and technological innovations.
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.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
RLV is the ticker symbol for the Russell 1000® Value Index.
The Russell 1000® Value Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of large-cap value stocks.
Discussions about the relative value of the health care sector versus the broad US market is based on comparisons of the S&P 500 Index and the S&P 500 Health Care sector from 1979 through 2025, sourced from Worldscope, IBES, and GMO.
Discussions about the correlation of the software industry to artificial intelligence companies becoming lower over time is based on the S&P North American Expanded Technology Software Index and an AI proxy consisting of equal weighs of the Magnificent 7: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Sourced from Morningstar Direct as of June 9, 2026.
The S&P North American Expanded Technology Software Index tracks companies in the Application Software and Systems Software sub-industries, as well as applicable supplementary stocks.
Book value is a company’s total assets minus liabilities and intangible assets.
Cash flow is the net amount of cash and cash equivalents generated by a business.
Correlation is the degree to which two investments have historically moved in relation to each other.
A discount measures how much less one stock (or index) is trading compared with another stock (or index).
Enterprise value is the theoretical takeover value of a company. It is calculated by summing the market capitalization, total debt, preferred stock, and any minority interest and subtracting cash.
Hyperscalers are companies that provide massive-scale cloud computing services and infrastructure.
Intrinsic value represents the inherent business value of portfolio holdings during a two- to three-year investment horizon based on their estimates of future cash flow.
The price-to-book (P/B) ratio is calculated by dividing the market price of a stock by the book value per share.
The price-to-earnings (P/E) ratio measures a stock’s valuation by dividing its share price by its earnings per share.
Return on invested capital (ROIC) is a measure of how efficiently a company is using its capital to generate returns.
A value trap is a stock that appears cheap based on valuation metrics but continues to underperform because its underlying business fundamentals are deteriorating.
CIO stands for Chief Investment Officer.
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