Developing markets in Asia have come a long way since the crisis of the late '90s, and trends are in investors' favor, says Invesco's Clas Olsson.
Clas Olsson, chief investment officer and portfolio manager of Invesco International Growth AIIEX, recently talked to us about many current concerns and topics on investors' minds. He discussed why his investing strategy will remain the same despite market volatility and also how his team is investing in Europe given the current debt crisis in the eurozone.
Olsson also addressed his focus on export-oriented companies in Japan and also the positive emerging-markets potential coming from Asia. Finally, he discussed the challenges in creating additional value though currency investments.
1. With long-time co-manager Barrett Sides departing, should investors be prepared for a strategy change?
No, the fund's investment strategy will remain unchanged. Our team will continue to follow our bottom-up, actively managed, long-term investment process which focuses on identifying high-quality growth companies that are trading at attractive valuations.
Our investment philosophy is an important differentiator relative to that of many other managers, so let me quickly go through each of those points in turn. Firstly, we're bottom-up investors. The International Growth strategy was launched in 1992, and over time we believe that we've demonstrated a strong record as good bottom-up stock-pickers. That focus on finding great companies at the right price, using our "Earnings, Quality, & Valuation" analysis, has really been the key driver of alpha. This is quite different to the top-down approach that is adopted by many other investors. We prefer to focus on identifying compelling stocks as opposed to trying to time markets based on numerous macroeconomic variables.
Secondly, we are active managers, meaning that we don't look to mirror the benchmark for the sake of it. Effectively, we believe that the more you look like the benchmark, then the less likely you are to outperform it. As mentioned, we've demonstrated a strong record of stock-picking, so we really let that drive the portfolio's overall profile. We buy stocks based on their individual investment merits rather than just because they might be a large part of the benchmark index. So we often invest in stocks that many other investors overlook, and consequently our portfolio has a high active share and relatively low benchmark overlap.
Finally, we are long-term investors, as opposed to short-term traders. We have a long-term investment horizon and look for companies with investment theses that will play out if you have some patience--we look to own companies through the cycle, over at least two to three years. In many cases we own them for longer than that, and consequently our portfolio turnover rate (often less than 35%) is relatively low compared with those of many other international growth managers.
So our investment strategy will definitely remain unchanged. This will also be helped by the fact that the remaining 12-member team is experienced and will still include seven senior portfolio managers and portfolio managers who have worked together since at least 2001. So it's been relatively very stable.
2. How has the debt crisis in Europe affected your investment thesis for the continent? Have you made any major changes in your portfolio in response?
We have been underweight the European region for a while, but it still represents about half of the portfolio (as opposed to approximately two thirds of the MSCI EAFE Growth Index). As mentioned, this is based on bottom-up company analysis rather than macro themes. So regardless of the negative macro headlines we are still able to identify plenty of stocks that we believe offer attractive EQV profiles. I should also add that we have very little direct exposure to European banks with significant sovereign debt exposure; that's obviously been an area of recent investor concern.
The silver lining to all the negative headlines and market volatility is that European firms can provide some great investment opportunities. Therefore, we've actually been investing some of our cash by adding to certain existing positions as well as initiating some new holdings in other quality stocks that have been on our radar screens.