A portfolio of European small and mid cap stocks with a focus on balance, diversification and stock-specific risk.
European small caps are attractively valued on a historic basis both relative to their European large cap and US small cap peers. For an asset class that offers superior long-term growth, this is therefore a very appealing entry point. The diversification to other global indices is also a key benefit to the strategy given the high levels of concentration in other areas of the market.
Like in other regions small caps have a history of outperforming large.
The chances of ‘mis-valuation’ in small caps are higher, benefitting fundamental investors such as Invesco.
Small caps have low correlation both to large caps and inter-regions.
Our investment process focuses on repeatable, sustainable alpha generation via a three-pillar framework, our investment ‘DNA’:
This consistent investment approach together with our focus on balanced portfolio construction leads to an emphasis on diversified, stock specific risk rather than factor risk and enables it to adapt to changing market conditions. We believe this leads to better long-term risk-adjusted returns.
Small caps are less well researched than larger cap stocks and so the chances of ‘mis-valuation’ in small caps are therefore higher. This makes the asset class especially interesting for fundamental investors like us who can rely on their own breadth of research to uncover opportunities for alpha.
Although we are not thematic investors and instead have an acute focus on idiosyncratic returns at the company level, the portfolio is positioned to benefit from somesignificant multi-year opportunities in different trends and business models including (i) the digitalisation of everything, (ii) green infrastructure / technology, (iii) undiscovered sustainability, (i.v). defence, and (v) infrastructure to name a few.
Areas where we are more cautious and have so far avoided are those such as manufacturing specifically where there is competitive risk from China, e.g. auto supplies.
Access the Invesco Continental European Small Cap Equity Fund product page to view KIDs/KIIDs and factsheets. The investment concerns the acquisition of units in an actively managed fund and not in a given underlying asset.
For complete information on risks, refer to the legal documents. The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. This is a small companies fund, you should be prepared to accept a higher degree of risk than a fund that invests in larger companies.
James Matthews and Michael Oliveros manage the fund’s stock selection. They have a combined investment experience of more than 40 years.
"Our commitment to building balanced, diversified portfolios - characterised by high stock-specific and low factor risks - stems from our recognition of the uncertainty of the future. This approach emphasises incorporating a margin of safety into our process and staying adaptable to change."
James Matthews, European Small Cap Equities Fund Manager
Contrary to much of the highly negative sentiment in the markets currently, we believe that the scene is being set for a stronger macroeconomic backdrop in Europe; yes, the overall picture is complicated and not helped by politics, but the underlying data is slowly encouraging. Inventory levels are bouncing along the bottom suggesting the next stage will be re-stocking; interest rates are coming down from their highs and so corporate loan demand is increasing and the supply side is easing; at the consumer level, mortgage demand and supply is also improving; European consumers have also enjoyed a year of real wage growth which, together with the current high savings rates, gives them spending power for when their confidence returns – this is important for an economy where the consumer accounts for over 50% of GDP. As consumer spending picks up, so will corporate confidence improve and capex there likely grow, too, and so the circularity continues.
Like in other regions, small caps have a history of outperforming large cap stocks. Some of the beneficial characteristics of European small caps are:
We have no preconceived style bias towards stocks, sectors or countries, rather we look for the best investments at any point in time.
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Discover the potential of equal weight strategies and how they could offer enhanced diversification.
Data as at 31.01.2025, unless otherwise stated. This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Views and opinions are based on current market conditions and are subject to change. For information on our funds and the relevant risks, refer to the Key Information Documents/Key Investor Information Documents (local languages) and Prospectus (English, French, German, Spanish, Italian), and the financial reports, available from www.invesco.eu. A summary of investor rights is available in English from www.invescomanagementcompany.lu. The management company may terminate marketing arrangements. Not all share classes of this fund may be available for public sale in all jurisdictions and not all share classes are the same nor do they necessarily suit every investor.
EMEA4231745/2024
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