Invesco Emerging Markets ex China

As with the rest of Invesco’s emerging markets offerings, the core of this fund’s philosophy and approach to investing is the view that valuation is paramount. The team seeks to invest in companies that are trading at a significant discount to their estimate of fair value and looks for ideas in unloved areas.

Investment decisions are made to try to exploit market inefficiencies caused by investor behavioural biases. These biases include things like market overreaction to short-term issues and trend extrapolation. While the fund doesn’t have a specific style bias, it does have a slight value tilt.

The majority of the team's research is focused on analysing individual stocks, including evaluating a company's competitive advantages, management quality, balance sheet strength, and identifying key factors that drive earnings.

Stripping out Chinese companies, the team has established an investable universe of approximately 600-700 stocks, extensively researched over a significant period. The team aims to further narrow down the investable universe into a dynamic buy-list called the ‘Company Shortlist’, comprising around 60-70 stocks (this figure stands at 100 when including Chinese companies in the other emerging markets portfolios).

Some of these stocks are already held in the portfolio, while others are potential candidates for inclusion. The company shortlist is continuously evaluated and ranked based on changing share prices and fundamentals.

Conducting company meetings is an essential stage in the fund managers’ process, as it helps solidify their comprehension of the business's characteristics, key drivers, competitive standing, and the management's potential to achieve their objectives.

The portfolio construction process comes next, with the managers aiming to optimise exposure to the most appealing stocks, sectors, and themes by creating a concentrated portfolio consisting of around 35-45 stocks – each holding is likely to be held in other portfolios across the emerging market fund range.

The weightings assigned to each stock reflect the team's assessment of its attractiveness and the level of conviction.

Risk management is embedded in the process. Multiple groups also oversee and support the investment team throughout the process, including risk committees, global compliance, and the investment risk team. Investment in emerging markets tends to be more volatile than in developed markets. This fund also does not have exposure to China, meaning performance can be significantly different to the wider emerging market index. There are also currency risks to consider.

ESG - Limited

The team takes a comprehensive approach by examining a company's ESG credentials alongside traditional financial and qualitative factors to establish a fair value. It particularly emphasises the concept of ESG materiality (the impact of ESG factors on fair value) and ESG momentum (the potential for ESG improvement over time), as both factors can influence a stock's potential returns and the team's level of conviction in an investment.