Invesco European Equity Fund

31 March 2022

3 minute read

Finding ‘cheap’ companies is what fund managers do, isn’t it? Yes, it is. But one fund manager’s definition of ‘cheap’ can be very different to another. Finding cheap companies that are simply ‘out of favour’ is a particularly interesting approach that really focuses your attention away from what is happening today and more towards the longer term.

Who's it for? All investors

There’s a reason why the share prices of some companies are more expensive than others. It’s usually because they are strong companies which are growing their earnings. And there’s usually a reason why some companies’ share prices are cheap – because those companies are weaker businesses and the market expects them to become weaker. But within those cheap companies, it is possible to find companies which have potential to grow. It’s these companies which the market has simply overlooked or which have become ‘unloved’ which the Invesco European Equity Fund looks to invest in.

Why would a company be undervalued?

The team at Invesco believe there are three main reasons why the share prices of some good quality companies are cheap. Firstly, markets simply overreact to what’s happening today, rather than focusing on the years ahead. We see this often when the share prices of companies surge or collapse on the back of a news release or earnings report from that company, which typically focuses on today’s market. Investors’ attentions are then diverted away from where that company will be in three or five years’ time, which results in a share price that’s no longer focused on the long term.

Secondly, investors typically focus on current trends and believe these will continue for many years. A good example was during the first global pandemic lockdown in early 2020, where global air travel collapsed. However, we subsequently saw air travel return over the following months.

Thirdly, a significant cause of market inefficiencies is momentum. This is where investors continue to buy shares which are rising or sell shares that are falling. More and more trading in these shares simply creates momentum behind the rising and falling share prices. This can lead to some share prices becoming abnormally expensive and some share prices becoming abnormally cheap, regardless of how strong those underlying businesses are.

Investing in cheap companies

The Invesco European Equity Fund looks to invest in about 50 companies which they have identified to be cheap. But it’s important to understand that these cheap companies can remain cheap for many years. It has been known for some of these companies to remain ‘out of favour’ for some time during which the Invesco European Equity Fund could underperform.

But if these companies are genuinely good quality, and they really are just ‘out of favour’, then buying them when their share prices are cheap should be a prudent investment. We like how the team at Invesco have been sticking to this approach to investing for many years and have a long track record in identifying such companies. This is why the fund has a place on the Barclays Funds List.

If you’re thinking of investing in a European equity fund, and the idea of an alternative approach to finding ‘out of favour’ companies sounds like an attractive approach to investing, this fund could be worth considering. In addition to the Invesco European Equity Fund, there are also four more funds on the Barclays Funds List that invest in the shares of European companies. Find out more information on these funds.

Correct at the time of publishing.

To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These Barclays multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Past performance of the fund and its manager are not a reliable indicator of their future performance.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.

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