International equity fundamentals show improvement

As our strategy turns 25, we discuss the keys to our EQV philosophy

International equity fundamentals show improvement

This year marks the 25th anniversary of Invesco International Growth Fund. In that time, we’ve seen the performance pendulum swing widely across global regions and investment styles. But no matter the market conditions, our focus on EQV — Earnings, Quality and Valuation — has remained constant.

To kick off our 25th year, most international markets had strong performance in the first quarter, driven by an improving macroeconomic backdrop overseas and a weakening US dollar. Importantly, as we look at the markets through our EQV perspective, we have seen some encouraging changes:

  • Earnings. For the first time since 2011, we have seen a synchronized global recovery in earnings revisions, with all regions showing positive revisions. This started in 2016 in Europe and emerging markets as they benefited from a weakening currency and stronger commodity prices. The trend has spread to all major regions supported by improving economic indicators.
  • Quality. When looking at return on equity figures outside of the US, they are depressed to a level that, over the past 35 years, has only been lower in the recessions of 1993, 2002 and 2009. That also means there is some potential for returns and profits to rebound going forward, in our view.
  • Valuation. On a relative basis, international market valuations are close to historical lows when compared to the US. As of January 2017, the US was trading at 35% premium versus international markets in terms of its price-to-earnings ratio for the next 12 months (versus a 16-year average of 20%), and at an 80% premium in terms of price-to-book ratio (versus a 16-year average of 42%).1

Given these bottom-up trends — as well as top-down considerations such as accommodative central banks in Europe and Japan, and exports being driven by weaker currencies versus the US dollar — we believe there is a strong case to be made for international investing in today’s environment.

Looking toward the next 25 years

Given our silver anniversary this year, we’ve been asked two main questions:

  1. What’s the most critical contributor to your past performance?
  2. What is needed to continue your process for the next 25 years?

The answer to the first question is a sound investment philosophy focused on stock picking, active management and a long-term investment horizon. We believe that relying on macro calls is a much less consistent and more difficult way of seeking outperformance against the market — that’s why we focus on company fundamentals above all else.

As for the second question, we believe the key to future performance is to maintain the strength of our investment culture. That includes cultivating a deep bench of talent, mentoring our analysts and portfolio managers from day one, and promoting a culture of continuous learning. In international markets, change is a constant; we have to be open to learning and adapting as markets evolve. This does not mean we change our process, but rather we strive to improve it over time.

Learn more about Invesco International Growth Fund.

1 Source: FactSet Research Systems, Inc. US market represented by the MSCI USA Index. International markets represented by the MSCI All Country World ex-US Index.

Important information

Blog header image: Zuurbiero/

The MSCI All Country World ex-US Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the US.

The MSCI USA Index measures the performance of the large- and mid-cap segments of the US market.

An investment cannot be made directly in an index.

Return on equity (ROE) is a measure of profitability, calculated as net income as a percentage of shareholders’ equity.

Price-to-earnings ratio for the next 12 months (P/E NTM) is one measure of the price-to-earnings ratio, calculated with forecasted earnings for the next 12 months rather than current earnings.

Price-to-book (P/B) ratio is calculated by dividing the market price of a stock by the book value per share.

Invesco International Growth Fund risks

Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.

Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

The fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the fund.

Clas G. Olsson
Senior Portfolio Manager, Managing Director
CIO, International Growth Equity

Clas Olsson is Chief Investment Officer (CIO) and Senior Portfolio Manager with the Invesco International and Global Growth team. He also serves as a lead manager on the Invesco International Growth and Invesco European Growth strategies.

Mr. Olsson began his investment management career in 1994 as an investment officer and portfolio analyst specializing in international equities with Invesco. He was promoted to portfolio manager in 1997 and assumed his current role as senior portfolio manager in 1999 and CIO in 2009. Prior to joining Invesco, Mr. Olsson was a communications officer in the Royal Swedish Navy.

A native of Vasteras, Sweden, Mr. Olsson became a commissioned naval officer at the Royal Swedish Naval Academy in 1988 and earned a BBA degree in 1994 from The University of Texas at Austin.

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