European equities do not naturally spring to mind when thinking about growth but that is wrong-headed according to fund manager James Rutland who runs the Invesco European Focus Fund (BJ04GL7).

Against a tough market backdrop the fund has delivered handsome gains with a three-year return of 54% compared with 21% for the Investment Association’s Europe Ex-UK sector.

Showing it has more than one string to its bow, the fund also outperformed during 2022 posting a 1.5% return against an 18.5% drop for the sector.

Shares believes the fund is a great choice to get exposure to an underappreciated region and a team with a strong track record.

The reason for Rutland’s optimism is that he and the Invesco team believe the next investment cycle will be very different and provide better growth opportunities for European companies.

In contrast to the very low and sometimes negative interest rates of the past, Rutland says the next cycle will be characterised by positive interest rates which he believes will have a big impact on how investors should position portfolios.

Other supporting factors are government policy, which has decisively moved away from austerity policies towards investment, and a change in the direction of globalisation.

Rutland notes that companies are diversifying supply chains and bringing manufacturing towards domestic shores in response to the pandemic. These factors are likely to support a change of fortunes for European companies relative to the US.

In addition, the tailwind enjoyed by US growth stocks from ultra-low interest rates is likely to turn into a headwind in a persistently higher inflation and higher interest rate environment.

A key part of the manager’s investment philosophy is the belief that the market struggles to correctly value companies undergoing positive change. The team specialises in finding these market blind spots and taking advantage of mispricings.

The focus is on finding companies which the team believe can deliver strong returns over the medium-to-long term through a dominant market position or successful restructuring.

The fund has a concentrated portfolio of between 30 and 40 names and the top-10 holdings account for around 37% of the value of the portfolio.

Top positions include French oil giant TotalEnergies (TTE:EPA), German pharmaceutical firms Merck (MRK:ETR) and Swiss peer Roche (ROG:SWX).

Other holdings include financials AXA (CS:EPA), BNP (BNP:EPA) and ING (INGA:AMS) as well as global brewer Heineken (HEIA:AMS).

The fund has an annual ongoing charge of 0.8%.

‹ Previous2023-11-16Next ›