Invesco European Equities Economic Realities & Political - PowerPoint PPT Presentation

Invesco European Equities Economic Realities & Political Perceptions May 2017 Stephanie Butcher , Fund Manager, European Equities This document is for Professional Clients only and is not for consumer use. 10730/SR/Euro eqs/Apr17 UK1895

Invesco Perpetual European Equity Income Fund Fund characteristics Invesco Perpetual European Equity Income Fund Investment Target investment horizon of around 2 to Annualised returns, gross of fees in GBP (%) approach 3 years with flexibility to take advantage of shorter-term valuation anomalies 36 Number of factors considered including 32 30.7 Absolute level of equity income  28.8 Potential for growth in equity income  28 Potential for capital appreciation  24 Active, valuation-led, bottom up 19.2 20 investment approach with macro overlay 14.3 Current Fund size £693m 16 11.3 12 9.8 9.1 Fund managers Stephanie Butcher 8 5.3 Current no. of 54 4 holdings 0 Benchmark FTSE Europe ex UK. Flexibility to have off 1 year 3 years 5 years Since benchmark exposure Inception Fund inception* 12 December 2007 Invesco Perpetual European Equity Income Fund 10730/SR/Euro eqs/Apr17 UK1895 FTSE Europe ex UK Index Past performance is not a guide to future returns. Source: Invesco Perpetual as at 30 April 2017. Fund performance figures are shown in GBP, inclusive of reinvested income, gross of the Ongoing Charge and net of portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. Benchmark figures are total return, in GBP. *Stephanie Butcher took over management of the fund 1 December 2010. Please see net performance slide for the impact of the Ongoing Charge. 2

European ex UK Equities Team Fund Managers Analyst Steve Smith Jeff Taylor Oliver Collin 1 Trainee European Head of European Equities Analyst Eurozone Eurozone & Continental Europe Continental European Small Cap Stephanie Butcher Adrian Bignell European Small Cap Pan European & Continental European Income Continental European Opportunities John Surplice Erik Esselink Continental European Small Cap Pan European Matthew Perowne 1 Pan European Continental European Small Cap Continental European Opportunities Product Directors Product Managers Joel Copp-Barton Nitesh Mistry Elias Elias 10730/SR/Euro eqs/Apr17 UK1895 Product Director Product Director Product Manager Experienced fund managers in an integrated team structure with total AUM £13.0bn Source: Invesco Perpetual as at 31 March 2017. 1 Also fulfil analyst role for the wider team. 3

A holistic approach to equity income Steady income generators Companies with strong, long-term business models with robust cashflow generation, established dividend policies. e.g. Novartis e.g. Ahold Delhaize e.g. Atlantia Change in income perception Structural and/or cyclical changes in business model providing potential for equity income growth and capital appreciation. e.g. Financials e.g. Telcos e.g. Energy 10730/SR/Euro eqs/Apr17 UK1895 Depressed earnings and/or valuations Companies with significant potential for capital appreciation. For illustrative purposes only. 4

A holistic approach to equity income Allocation determined by valuation Invesco Perpetual European Equity Income Fund: Bucket analysis – segmenting the portfolio between steady income generators, change in income perception, depressed earnings and/or valuation 1 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Nov 10 Feb 12 May 13 Aug 14 Nov 15 Feb 17 Steady income generators Change in income perception 10730/SR/Euro eqs/Apr17 UK1895 Depressed earnings and/or valuation Cash & other Source: Invesco Perpetual as at 31 March 2017. 1 Based on the judgment of Stephanie Butcher and subject to change. 5

Invesco Perpetual European Equity Income Fund Portfolio: Key characteristics Key portfolio characteristics: Invesco Perpetual European Equity Income Fund Z Acc Metric Actual value Ranking 2 Number in peer group 2 125.52 1 77 5 year cumulative return, % 1 5 year annualised sharpe ratio, x 1.26 18 77 0.60 4 73 5 year annualised information ratio, x 3.25 4 95 12m dividend yield % 4 104.22 5 year upside capture ratio % 3 89.90 5 year downside capture ratio % 3 Past performance is not a guide to future returns. 10730/SR/Euro eqs/Apr17 UK1895 Source: Lipper as at 30 April 2017. 1 Performance figures are shown in sterling, inclusive of reinvested income and net of the Ongoing Charge and portfolio transaction costs. The figures do not reflect the entry charge paid by individual investors. Rankings as provided by Lipper on a equivalent basis with performance based on an equivalent basis. 2 Rankings as provided by Lipper. Peer group used is IA Europe Excluding UK NR. Please see net performance slide included in this presentation for full performance data. 3 Upside/downside capture ratios calculated from Morningstar as at 31 March 2017. Upside capture ratio: calculated by accumulating the portfolio returns for periods in which the benchmark returns were positive and dividing the total by the benchm ark’s accumulated positive returns. A higher upside capture ratio may indicate better portfolio performance in up markets. Downside capture ratio: calculated by accumulating the portfolio returns for periods in which the benchmark returns were negative and dividing the total by the benchmark’s accumulated negati ve returns. A lower downside capture ratio may indicate better portfolio performance in down markets. Ranking based on IA OE Europe Excluding UK. 4 Dividend yield is 12m trailing yield. 6

2016 was a year of major transition  Macro economic recovery  Reflation Leading to…  Sector and factor rotation 10730/SR/Euro eqs/Apr17 UK1895 Source: Invesco Perpetual as at 31 December 2016. 7

Positive activity and inflation surprises for the first time since 2013 Citi Eurozone Inflation and Economic Surprises Index 1 150 80 60 +ve surprise 100 40 50 20 0 0 -20 -50 -40 -100 -60 -ve surprise -ve surprise -150 -80 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 10730/SR/Euro eqs/Apr17 UK1895 Citi Economic Surprise Index Citi Inflation Surprise Index Source: Citigroup Global Markets, Bloomberg, Invesco as at 30 April 2017. 1 The Global Inflation and Economic Surprises Indices are defined as weighted historical standard deviations of data surprises – actual releases versus Bloomberg survey median. A positive reading suggests that the economic/inflation releases have on balance been better than the Bloomberg consensus and vice versa . 8

The ‘Value’ rally in 2016 was significant, not so in a longer term context… MSCI World and Europe: Rolling 10 year relative performance of value vs growth (%) 80 60 40 20 0 -20 -40 -60 Nov 87 Oct 88 Sep 89 Aug 90 Jul 91 Jun 92 Mar 95 Feb 96 Jan 97 Nov 98 Oct 99 Sep 00 Aug 01 Jul 02 Jun 03 Mar 06 Feb 07 Jan 08 Nov 09 Oct 10 Sep 11 Aug 12 Jul 13 Jun 14 Mar 17 Dec 86 May 93 Apr 94 Dec 97 May 04 Apr 05 Dec 08 May 15 Apr 16 10730/SR/Euro eqs/Apr17 UK1895 MSCI Europe: Value vs Growth MSCI World: Value vs Growth Source: Datastream, Morgan Stanley, Invesco as at 28 February 2017. The MSCI World and Europe Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 23 Developed Markets Countries. Variables include: long term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate, long term historical EPS and sales growth trends. The MSCI World and Europe Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Market countries. Variables include: book value to price, 12-month forward earnings to price and dividend yield. 9

…so, despite the improvement in performance, the valuation of ‘Value’ is close to the trough Composite value factor (Cheap/expensive): Price to Book (X) 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 Jan 90 Feb 91 Mar 92 Jun 95 Aug 97 Sep 98 Oct 99 Nov 00 Jan 03 Feb 04 Mar 05 Jun 08 Aug 10 Sep 11 Oct 12 Nov 13 Jan 16 Feb 17 Apr 93 May 94 Jul 96 Dec 01 Apr 06 May 07 Jul 09 Dec 14 10730/SR/Euro eqs/Apr17 UK1895 Source: Bernstein, Invesco as at 30 April 2017. The composite value factor is constructed with equal weights for Price to Book, 12m FWD PE and Dividend Yield. It is long top quintile of stocks that are cheap on this basis and short bottom quintile of stocks that are expensive across the market. The universe is Top 300 stocks from MSCI Europe by market cap. Factors are rebalanced quarterly – last re-balancing 31 December 2016. 10

So where to in 2017?  Economic recovery and its link to earnings  Europe within a global allocation  Politics  Where is the valuation opportunity today? 10730/SR/Euro eqs/Apr17 UK1895 Source: Invesco Perpetual as at 31 March 2017. 11