Fund in Focus: Invesco Global Companies Fund

Concentrated portfolio focused on valuation

Invesco Global Companies Fund (formerly Trimark Fund) has fallen off my radar over the past year or so, which is unfortunate, because it remains a very solid global equity pick. Managers Michael Hatcher and Jeff Feng use a disciplined, proven, fundamentally-driven, bottom-up investment process that seeks out industry leaders with strong barriers to entry, high levels of free cash flow, excellent management teams, and a history of generating high returns on invested capital.

While not a value fund per se, valuation plays a key role in building the portfolio. The managers model out the company and forecast what they believe it to be worth, based on their expected future cash flows. The stock must be trading at a level well below what the managers believe it to be worth before they buy.

The result is of this process is a concentrated portfolio of between 30 and 50 names. At the end of July, the portfolio consisted of 38 stocks, with the top 10 making up around 43% of the fund.

With an emphasis on quality, the fund’s valuation metrics are in line with the broader market. This is because the managers are willing to “pay up” a bit for higher-quality companies if they believe there’s potential for growth. According to the managers, the long-term expected growth rate of the companies in the portfolio is 11% annualized.

Top holdings at the end of July included Microsoft Corp. (NSD: MSFT), Visa Inc. (NYSE: V), Nielsen Holdings PLC (NYSE: NLSN), Wells Fargo & Co. (NYSE: WFC), and SAP SE (NYSE: SAP).

The bottom-up process sees a portfolio that is markedly different than the index or peers. For example, at the end of July, it was significantly overweight information technology, industrials, and consumer defensive stocks, while being underweight financials, real estate, healthcare, and materials. Because the fund tends to run a concentrated portfolio, its volatility is slightly higher than the index and the peer group.

Performance has been very strong, with a 1-year return of 5.4% to July 31 compared with a category average of 2.7%. It posted a 5-year average annual compounded rate of return of 10.4%, compared with the category average of 7.5%.

In a recent commentary, the managers note that trade and tariff issues, especially between the U.S. and China clouded the global outlook in the second quarter, increasing equity market volatility and setting the stage for more accommodative monetary policy from central banks. The managers also believe that the interplay between high levels of overall debt and the potential for rising interest rates have the potential to put pressure on the system over the next decade, which could decrease disposable income as consumers spend more to service their debt.

Looking ahead, with more volatility expected, the managers believe that more fundamental factors, such as earnings, cash flows, and return on capital, will drive stock prices, rather than momentum.

Invesco Global Companies Fund
Fund company: Invesco Canada
Fund type: Global Equity
FundGrade: B
Style: Large-Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Michael Hatcher since April 2011; Jeff Feng since April 2011
MER: 1.71% SC Units
Fund Code: AIM1513 (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.