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Summary The traditional playbook that investors have used to navigate market cycles has become outdated. Certain sectors usually become inexpensive after the type of market run that we’ve experienced during the past few years. But investors are chasing yield, which has kept certain stocks expensive. Invesco’s US Value complex includes three broad strategies, each with a distinct approach to evaluating companies. Looking into 2015, we highlight where each approach is seeing the most attractive opportunities. By Kevin Holt The traditional playbook that investors have used to navigate market cycles has become outdated. Certain sectors usually become inexpensive after the type of market run that we’ve experienced during the past few years. But, because interest rates are so low, investors are chasing yield. That has kept certain stocks expensive when you wouldn’t normally expect them to be, based on past cycles. At the same time, other sectors look attractive when they would normally be out of favor. For example, when you look at market history, value investors would not typically want to own financials at this point in the cycle. However, as we enter 2015, I believe financials have very attractive valuations, along with a surplus of capital that I expect to be returned back to shareholders in the form of increased dividends and/or stock buybacks. Overall, I believe the quality of the financials sector is the best we’ve seen in at least a decade, and see this story playing out over the course of the next four or five years. On the other hand, I believe that broadly, the consumer staples and telecommunications sectors are either fairly valued or expensive, as investors have driven up valuations in their search for yield. However, as bottom-up stock pickers, all of our value managers are focused on finding value opportunities wherever they may be – even within sectors that may be overvalued as a whole. Invesco’s US Value complex includes three broad strategies. There are many ways to be successful and intellectual independence is a core value across our teams. Each strategy has a distinct approach to evaluating companies. Looking into 2015, here is where each approach is seeing the most attractive opportunities: Our relative value strategies look for companies that are inexpensive relative to their own history. In this space, we have a particular interest in energy stocks as we enter the new year. Often, market volatility can lead to value opportunities, as quality companies get swept up in the sell-off. The oil markets experienced significant volatility toward the end of 2014 that may result in such opportunities. Our deep value strategies look for companies that are trading at a discount to their intrinsic value. In this space, our managers are also emphasizing energy stocks as well as financials, for the reasons stated above. Our dividend value strategies closely evaluate companies’ total return profile, emphasizing appreciation, income and preservation over a full market cycle. Through this lens, they are finding stock-specific opportunities within the consumer area. Our dividend managers have a high confidence in the durability of margins and of free cash flow generation for their holdings over the next two to three years, and believe that expectations for top-line recovery embedded in street estimates are conservative. So, while 2015 may feel like a very different year for the markets, our approach is the same as ever – across all three value sleeves, and across large-, mid- and small-cap stocks, we’re looking for opportunities that fit our philosophy, no matter what the typical market playbook says. Important information A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets. Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer’s board of directors and the amount of any dividend may vary over time. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale. The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE All data provided by Invesco unless otherwise noted. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Each entity is an indirect, wholly owned subsidiary of Invesco Ltd. ©2014 Invesco Ltd. All rights reserved. blog.invesco.us.com Scalper1 News
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