Invesco EQV Asia Pacific Equity Fund Q2 2024 Review

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Invesco EQV Asia Pacific Equity Fund Class A shares underperformed the MSCI AC Asia Pacific ex Japan Index.During the quarter, we initiated two new positions and exited three stocks based on our EQV ...

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Stock selection in industrials, real estate and financials were among the largest detractors from relative performance, as was an overweight in real estate.   Bottom-up stock selection focused on EQV (Earnings, Quality, Valuation) characteristicsDuring the quarter, we initiated two new positions and exited three stocks based on our EQV fundamentals. Our actively managed, bottom-up stock selection drives the fund’s sector and country allocations.   We remain focused on a long- term investment horizonRegardless of the macroeconomic environment, we remain focused on applying our well-established, long-term, bottom-up EQV investment process that seeks to identify attractively valued, high quality growth companies.   Manager perspective and outlook Despite a notable decline in April, global equities had a positive return for the second quarter as investors appeared to continue anticipating central bank interest rates cuts. Some central banks, including the European Central Bank and the Bank of Canada, have started to ease monetary policy. Others have kept rates the same amid sticky inflation in the services sectors. In this environment, developed market equities performed well, primarily driven by US growth stocks, specifically stocks related to artificial intelligence ('AI'). Emerging market equity returns were positive for the quarter, outperforming developed market equities, driven by equity gains in Taiwan and China. In contrast, equity returns in Indonesia, the Philippines and Thailand were negative for the quarter. Though global equities have continued to rise in some regions, we believe it is important to acknowledge that monetary policy have remained uncertain. Other potential risks include ongoing geopolitical tensions and elections around the globe, which may create market headwinds and may increase volatility. In this environment, we believe equity investors may focus on the type of high quality and traditional investment fundamentals that are central to the fund’s balanced EQV investment philosophy. Portfolio positioning During the quarter, we initiated the following positions: Shenzhen Inovance Technology is a China-based leader in industrial automation products with market share gains in a structurally growing industry. The company has been a key beneficiary of domestic substitution for foreign brands. We believe its return on equity is attractive and it has a healthy balance sheet with negligible debt levels. The stock’s valuation has been appealing in part due to the automation industry’s recent weakness. However, we see signs that industry demand/growth rates are improving. Bank Rakyat Indonesia (OTCPK:BKRKY) provides commercial banking services focused on lending and banking for micro, small and medium-sized enterprises in Indonesia. The company operates in the highly profitable and difficult to replicate micro lending. Indonesia has several structural tailwinds that we view as favorable for the banking industry, including attractive demographics and low credit penetration. In addition to a favorable macroeconomic backdrop, we believe Bank Rakyat could see a significant improvement in quality. Management has been shifting its mix toward the highest return on equity/lowest non-performing micro loans. We added to the fund’s position in Bangkok Dusit Medical Services (OTCPK:BDUUF). Bangkok Dusit is a leading private hospital operator in Thailand. Better-than-expected operating results and strong revenue guidance has led to analyst upgrades. We have continued to build the position we initiated in the first quarter as valuation has remained favorable. We sold the following stocks: Swire Properties (OTCPK:SWPFF) is a major office and retail landlord in Hong Kong and China. We have been trimming the position for some time and exited the stock completely during the quarter based on our long-term concerns about weakening office demand due to Hong Kong’s decline as a financial center and increasing supply of office space, which could further pressure rents. Yum China (YUMC) is the owner of KFC and Pizza Hut in China. We exited the position because rising competition has negatively affected sales growth and profit margin potential. Telkom Indonesia is an Indonesian telecommunications company. Top issuers (% of total net assets)     Fund Index   Taiwan Semiconductor Manufacturing Co Ltd (TSM) 8.68 9.32   Tencent Holdings Ltd (OTCPK:TCEHY) 5.16 4.00   HDFC Bank Ltd (HDB) 4.85 0.72   Samsung Electronics Co Ltd (OTCPK:SSNLF) 3.94 4.07   Broadcom Inc (AVGO) 3.72 0.00   Mitra Keluarga Karyasehat Tbk PT (MIKAF) 3.24 0.00   BDO Unibank Inc (OTCPK:BDOUF) 3.17 0.07   Fuyao Glass Industry Group Co Ltd (OTCPK:FYGGY) 3.13 0.05   Bank Central Asia Tbk PT (OTCPK:PBCRF) 3.02 0.43   MediaTek Inc (OTCPK:MDTTF) 3.01 0.83  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 Stock selection in information technology and communication services added to relative performance. Having no exposure in the materials sector also added to relative return. Geographically, stock selection in Australia and India, US exposure and an underweight in Australia were the largest contributors to relative results. Conversely, stock selection in industrials, real estate and financials were the largest detractors from relative results. An overweight in real estate also hampered relative return. Geographically, stock selection in China, the Philippines and Hong Kong were the leading detractors from relative performance. Overweights in the Philippines and Indonesia also had a negative effect on relative return. Contributors to performance Below are the largest contributors to absolute return for the quarter: Taiwan Semiconductor’s technology roadmap and financial performance have remained strong, and the company has continued to benefit from increased AI demand and a better pricing outlook. Tencent’s newer online advertising products have boosted growth and market share, while the outlook for online games may improve given its solid pipeline. Profit margins have risen faster than expected as the company focuses on higher value revenue streams. Emami is an India-based fast-moving consumer goods (FMCG) company focused on Indian-centric products (e.g., cooling oil). Demand for fast moving consumer goods in rural India has started to recover and grow faster than in urban India, which helped Emami post solid volume growth in the most recent quarter after a period of disappointing results. Detractors from performance Below are some of the largest detractors from absolute return for the quarter: BDO Unibank (BDO) is a large Philippine bank that reported relatively weak first quarter results with higher-than-expected costs. Additionally, BDO often trades as a proxy for the Philippines equity market, which was hampered by a weaker currency. We continue to like BDO for its dominant market position in the Philippines and are encouraged by its improving loan growth. Tongcheng Travel (OTCPK:TNGCF) is an online travel agency in China that focuses on domestic and lower tier cities. The stock corrected after first quarter earnings were weaker than expected due to temporary margin pressure from investments in new business. We trimmed the stock to control position size, but we still like the company’s long-term fundamentals. SM Prime (OTCPK:SPHXF) owns and operates malls in the Philippines, as well as developing residential projects in the country. Weak pre-sales data, interest rates remaining higher for longer and increased government taxes have pressured the shares. We continue to like SM Prime’s dominant shopping mall business, which may benefit longer term from favorable demographic trends driving increased consumption in the Philippines. Top contributors (%)    Issuer Return Contrib. to return   Taiwan Semiconductor Manufacturing Company Limited 22.80 1.53   Tencent Holdings Limited 23.94 1.04   Emami Limited 60.70 0.91   Broadcom Inc. 21.53 0.86   HDFC Bank Ltd. 16.16 0.67  \nClick to enlarge Top detractors (%)   Issuer Return Contrib. to return   BDO Unibank, Inc. -19.83 -0.76   Tongcheng Travel Holdings Limited. -23.83 -0.73   China Resources Beer (Holdings) Co. Ltd. (OTCPK:CRHKY) -25.52 -0.49   Techtronic Industries Company Limited (OTCQX:TTNDY) -14.94 -0.47   SM Prime Holdings, Inc. -15.89 -0.44  \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:ASIAX) inception: 11/03/97 NAV 1.47 4.17 2.01 -4.57 3.09 4.25 7.79     Max. Load 5.5% -4.11 -1.57 -3.61 -6.36 1.93 3.66 7.56   Class R6 shares (MUTF:ASISX) inception: 04/04/17 NAV 1.58 4.36 2.42 -4.21 3.51 4.56 -   Class Y shares (MUTF:ASIYX) inception: 10/03/08 NAV 1.54 4.28 2.25 -4.34 3.35 4.51 8.65   MSCI AC Asia Pacific ex Japan Index ('USD') 6.27 8.48 13.05 -4.41 3.94 4.08 -   Total return ranking vs. Morningstar Pacific/Asia ex-Japan Stk category (Class A shares at NAV)   - -  94% (48 of 51)   31% (10 of 47)   42% (19 of 46)   42% (16 of 35)  -  \nClick to enlarge  Expense ratios per the current prospectus: Class A: Net: 1.45%, Total: 1.46%; Class R6: Net: 1.04%, Total: 1.05%; Class Y: Net: 1.20%, Total: 1.21%. Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit invesco.com 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. Performance shown prior to the inception date of Class R6 shares is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Index source: RIMES Technologies Corp. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. 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. \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. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2459313183"}