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The Invesco U.S. Companies Fund jumped out to a strong start this year, thanks to a strong contribution from its healthcare and technology holdings. It gained 5.3% in January, outpacing both the U.S. Equity peer group (4.6%). Longer-term numbers are also strong, with a 10-year average annual compounded rate of return of 13.9% to April 30, besting its category, but slightly lagging the S&P 500.
In a recent commentary, the manager noted that on the whole, he views the market as fairly valued, particularly when compared with interest rates and inexpensive compared to some other asset classes. The manager believes that equities are under-owned now after a selloff and switch to less volatile assets. However, he concedes that certain pockets of the market have become overvalued.
Furthermore, he sees room for a rotation into more modestly valued companies, which are expected to help mitigate some of the risk in the portfolio and also set the stage for the next upturn. Making such a shift would be expected to help lower the overall volatility of the portfolio and bring the overall valuation numbers of the fund more in line with longer-term averages.
Like other Invesco funds, this one invests in a portfolio of attractively priced U.S. companies that have distinct proprietary advantages, strong management, industry leadership, and a history of strong capital allocation policies. One key difference is that this process is undertaken under more of a growth lens. In addition, the manager pays particular attention to companies that have a proven ability to profit from technological advances, and that have invested significantly to obtain their competitive advantages.
The manager’s process is fairly patient, with a level of portfolio turnover that has averaged around 36% per year. This indicates that the implied holding period for each stock in the fund is nearly three years.
The portfolio remains rather concentrated, with just north of 40 names and an overweight in technology (28%), healthcare (19%), and industrials (18%). Unlike most of the other Invesco funds, this one is nearly fully invested, with cash of less than 1%.
Top holdings at Jan. 31 included information technology companies Mellanox Technologies Ltd. (NASDAQ: MLNX), Analog Devices Inc. (NASDAQ: ADI), and Microsoft Corp. (NASDAQ: MSFT), healthcare firm Stryker Corp. (NYSE: SYK), and industrial technology firm Roper Technologies Inc. (NYSE: ROP).
A drawback to the fund is its cost. It carries an MER of 2.76%, which while on the way down in recent years, remains well above the category average.
While the fund has rallied somewhat recently, it remains under review among funds that I track, as I am watching to see how the manager repositions the portfolio over the next quarter or two.
Invesco U.S. Companies Fund
Fund Company: Invesco Canada
Fund Type: U.S. Equity
FundGrade Rating: B (January)
Fundata FundGrade A+® Award: 2014
Style: Large-Cap Growth
Risk Level: Medium
Load Status: Optional
RRSP/RRIF Suitability: Good
Manager: Jim Young since October 1999
MER: 2.76%
Fund Code: AIM1743 (Front-end load)
Minimum Investment: $500
Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.
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