Fund in Focus: Invesco International Companies Fund

FundGrade A+® Award winner

Managed by the team of Jeff Feng and Matt Peden, Invesco International Companies Fund is a high-conviction portfolio of quality companies with strong management, free cash flow generation, excellent organic growth, and sustainable competitive advantages. The managers like to view investing more as taking an ownership in a business rather than trading stocks. As a result, they tend to focus more on the intrinsic value of a company rather than its share price, leading to lower levels of portfolio turnover.

At the end of September, the fund held 33 positions, with the top 10 making up half of portfolio weight. The investment process is very much a fundamentally-driven, bottom-up approach, with sector weights and geographic exposures being the by-product of the stock selection process. The fund holds a strong overweight position in consumer discretionary, industrials, and communication services, and is underweight healthcare, financials and real estate, with no exposure to the cyclically-driven energy and materials sectors.

Top holdings as of Aug. 31 included Alibaba Group Holding Ltd., Corporate Travel Management Ltd., Prosus NV, Canadian Dollar Cash Management Fund, Series I, and Scout24 AG

While the investment process is considered value-focused, in that the managers are looking for securities that are trading below what they believe them to be worth, the overall portfolio has a growth tilt. Valuation levels are well above the index and peer group. However, the quality metrics and growth profile, both on an historic and forward-looking basis, are more attractive.

Performance has been very strong. For the year to date ending Sept. 30, the fund generated a return of 13.0%, compared with a loss of 2.3% for the category average. Its 5-year average annual compounded rate of return is 10.9%, handily outpacing the peer group average of 5.2%. Over 10 years, the fund’s annualized return is 10.5%. The fund’s growth focus has been a big contributor to the performance, with consumer and industrial names leading the way higher. The consistent outperformance has resulted in annual FundGrade A+ Awards from 2014 to 2018.

While fund performance has been strong, volatility has been well above average with 3-year average standard deviation of 15.2 compared with the category median of 11.8. The fund has outperformed in rising markets and lagged in falling markets. I expect that volatility will remain higher than average, and the fund may experience stronger selloffs in volatile markets. I also expect that this fund may lag if we see market leadership return towards more value-focused names.

This remains a very solid fund, run by an excellent management team, but it carries a higher level of risk. If you have held this fund for some time, you may want to consider taking some profits.

Invesco International Companies Fund
Fund company: Invesco Canada Ltd.
Fund type: International Equity
FundGrade: A (September)
FundGrade A+ Awards: 2014-2018
Style: Bottom-up large-cap growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Jeff Feng since October 2009; Matt Peden since April 2015
MER: 2.67%
Fund code: AIM1733 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.