Invesco International Diversified Fund Q2 2024 Review

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Invesco International Diversified Fund Class A shares at NAV underperformed the MSCI ACWI ex USA Index.Stock selection in health care, information technology (IT) and consumer staples were the primary...

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and do not rely on debt.   primeimages Key takeaways   International Diversified Fund provides broad international exposureInvesco International Diversified Fund offers investors broad-based exposure to non-US equities by combining four portfolios that have varied individual mandates regarding region and company size.   The fund underperformed its benchmark in the second quarterInvesco International Diversified Fund Class A shares at NAV underperformed the MSCI ACWI ex USA Index. Stock selection in health care, information technology (IT) and consumer staples were the primary drivers of relative underperformance.   Positioned for the longer termThe fund’s underlying portfolios are biased toward quality growth companies. As low interest corporate debt matures and reissues at higher rates, we are comforted that many companies in the underlying portfolios finance their growth from operating cash flow and do not rely on debt.   Manager perspective and outlook Equity markets opened the second quarter with a correction, giving back much of the gain they had made in the previous quarter. However, after bottoming in mid-April, the US and emerging markets regained all of the lost ground and advanced further while developed non-US equities lagged. As in previous quarters, attention centered on the US Federal Reserve (Fed) and the outlook for US interest rate policy. Fed guidance signaled only one rate cut this year, and not before September “at the earliest.” To the surprise of many, equity markets rose following the announcement. In our opinion, this is evidence that valuations have largely been adjusted for the reality of higher capital costs. The variable effect of those costs on corporate earnings and returns is what we believe will increasingly matter. Indebtedness had appeal in the period after the 2008 global financial crisis and there was no great advantage in being conservatively financed. We believe, however, that prudent financing will be an advantage in the years to come and are comforted that current portfolio positioning avoids exposure to meaningful indebtedness. Portfolio positioning International Diversified Fund offers investors broad-based exposure to non-US equities with a single portfolio by combining four underlying portfolios that have varied individual mandates regarding region and company size. We made no material changes to the composition of the fund during the quarter. Changes in relative weights from the end of the first quarter resulted from market action. At quarter end, the fund’s asset allocation was as follows: International Small-Mid Company Fund 29.88%, International Growth Fund 24.80%, EQV International Equity Fund 24.75%, and Developing Markets Fund 20.04%. We believe the fund is well positioned as we go “back to the future,” a normal future in which capital is once again a scarce resource, making earnings and creditworthiness more important. As low interest rate corporate debt matures, companies will have to roll over that debt at higher rates. We are comforted that the fund’s quality growth tilt provides exposure to companies with little to no reliance on debt financing. We believe these companies, and the fund, will be rewarded as markets continue to adjust to this world where capital has a cost. Top issuers (% of total net assets)     Fund Index   Taiwan Semiconductor Manufacturing Co Ltd (TSM) 3.75 2.82   Novo Nordisk A/S (NVO) 2.31 1.81   ASML Holding NV (ASML) 1.54 1.59   Samsung Electronics Co Ltd (OTCPK:SSNLF) 1.42 1.23   HDFC Bank Ltd (HDB) 1.31 0.22   Tencent Holdings Ltd (OTCPK:TCEHY) 1.26 1.21   London Stock Exchange Group PLC (OTCPK:LDNXF) 1.08 0.21   LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF) 1.05 0.81   Epiroc AB (OTCPK:EPOKY) 1.05 0.08   Kotak Mahindra Bank Ltd (KMBKY) 0.96 0.09  As of 06/30/24. Holdings are subject to change and are not buy/sell recommendations. \nClick to enlarge Sector breakdown (% of total net assets)    Top countries (% of total net assets)    Performance highlights From a sector perspective, the largest positive contributors to relative performance were stock selection in energy and consumer discretionary. Stock selection and an underweight allocation in the real estate sector also benefited results. From a geographic perspective, the largest positive contributors to relative performance were stock selection in Canada and Sweden. An underweight allocation to Canada was also beneficial to relative return. From a sector perspective, the largest detractors from relative performance were stock selection in health care, IT and consumer staples. Geographically, the largest detractors from relative performance were stock selection in China and Germany. Contributors to performance Developing Markets Fund returned 0.63%, contributing 0.10% to absolute return. Detractors from performance Following are the returns and performance effects of the underlying portfolios that detracted from absolute return: International Small-Mid Company returned -5.30%, detracting 1.58% from absolute return, International Growth returned -1.64%, detracting 0.40% from absolute return, and EQV International Equity returned -1.51%, detracting 0.38% from absolute return. Top contributors (%)   Issuer Return Contrib. to return   Taiwan Semiconductor Manufacturing Company Limited 22.33 0.64   Novo Nordisk A/S 13.26 0.27   Tencent Holdings Limited 23.29 0.20   HDFC Bank Ltd. 17.22 0.20   Dollarama Inc. (OTCPK:DLMAF) 19.81 0.14  \nClick to enlarge Top detractors (%)   Issuer Return Contrib. to return   Carl Zeiss Meditec AG (OTCPK:CZMWF) -43.74 -0.35   Wal-Mart de Mexico, S.A.B. de C.V. (OTCQX:WMMVY) -15.53 -0.19   NICE Ltd. (NICE) -34.02 -0.19   LVMH Moet Hennessy Louis Vuitton SE -14.03 -0.18   Sartorius AG (OTCPK:SARTF) -40.92 -0.18  \nClick to enlarge Standardized performance (%) as of June 30, 2024       Quarter YTD 1 Year 3 Years 5 Years 10 Years Since inception   Class A shares (MUTF:OIDAX) inception: 09/27/05 NAV -2.35 0.50 3.92 -5.22 3.12 3.56 5.50     Max. Load 5.5% -7.74 -5.04 -1.79 -7.00 1.96 2.98 5.18   Class R6 shares (MUTF:OIDIX) inception: 08/28/12 NAV -2.29 0.60 4.27 -4.89 3.50 3.98 6.47   Class Y shares (MUTF:OIDYX) inception: 09/27/05 NAV -2.31 0.55 4.17 -5.00 3.36 3.82 5.80   MSCI ACWI ex USA Index ('USD')   0.96 5.69 11.62 0.46 5.55 3.84 -   Total return ranking vs. Morningstar Foreign Large Growth category (Class A shares at NAV)   - -  85% (341 of 398)   78% (304 of 383)   91% (304 of 334)   90% (199 of 224)  -  \nClick to enlarge  Expense ratios per the current prospectus: Class A: Net: 1.29%, Total: 1.29%; Class R6: Net: 0.92%, Total: 0.92%; Class Y: Net: 1.04%, Total: 1.04%. Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit Country Splash for the most recent month-end performance. Performance figures reflect reinvested distributions and changes in net asset value (NAV). Investment return and principal value will vary so that you may have a gain or a loss when you sell shares. Returns less than one year are cumulative; all others are annualized. As the result of a reorganization on May 24, 2019, the returns of the fund for periods on or prior to May 24, 2019 reflect performance of the Oppenheimer predecessor fund. Share class returns will differ from the predecessor fund due to a change in expenses and sales charges. Index source: RIMES Technologies Corp. Had fees not been waived and/or expenses reimbursed in the past, returns would have been lower. Performance shown at NAV does not include the applicable front-end sales charge, which would have reduced the performance. Class Y and R6 shares have no sales charge; therefore performance is at NAV. Class Y shares are available only to certain investors. Class R6 shares are closed to most investors. Please see the prospectus for more details. For more information, including prospectus and factsheet, please visit Invesco.com/OIDAX Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value Not Insured by any Federal Government Agency \nClick to enlarge  Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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