Invesco Growth And Income Fund Q2 2024 Review

Key conclusions

• The fund underperformed its benchmark
  • Stock selection in the industrials and healthcare sectors led to relative underperformance for the fund. Stock selection in communication and financial services contributed to relative performance.
• The fund’s activity was low this quarter
  • The team purchased new holdings in the Financials, Healthcare and Information Technology (“IT”) sectors. These purchases were funded by sales in the Healthcare sector and reductions in underperforming positions.
• Value stocks significantly underperformed growth
  • Growth stocks outperformed value stocks in the second quarter, with the Russell 1000 Growth Index returning 8.33% and the Russell 1000 Value Index declining, returning -2.17%.

Manager’s perspective and prospects

While artificial intelligence (“AI”)-related stocks continued to rally, leading several stock indices to record highs, other non-AI areas of the market saw declines.

Most S&P 500 stocks (SP500, SPX) beat earnings expectations, but earnings growth was concentrated, with most of the gains coming from the “Magnificent Seven” stocks (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla).

As expected, the US Federal Reserve’s June meeting brought no change to the federal funds rate. The minutes from the meeting suggest that the committee is only forecasting one rate cut in 2024 as inflation remains above its 2% target. AI-fueled growth stocks outperformed value stocks, with the Russell 1000 Growth Index returning 8.33% and the Russell 1000 Value Index returning -2.17%. In the Russell 1000 Value Index, only utilities and consumer staples rose, while real estate, consumer discretionary, and healthcare were the biggest decliners. There is a noticeable valuation gap between the largest large-cap stocks and the rest of the market, and we believe this creates a favorable landscape for value investors. We continue to focus on our fundamental work so that we can move quickly to capitalize on new opportunities as they arise. Regardless of the economic environment, we seek to invest in companies with attractive valuations and strong fundamentals, characteristics that we believe will ultimately be reflected in their share prices.

Portfolio positioning

With many equity indices at record highs, valuation opportunities were limited and portfolio activity was somewhat muted. We purchased new holdings in financials, healthcare and IT. These purchases were funded by selling healthcare and trimming some of our better performing positions.

New shares

Fidelity National Information Services (FIS): The company is a leading global provider of financial services technology solutions to financial institutions, enterprises and developers. The company has lagged its competitors in recent years due to numerous acquisitions that have increased its debt. However, the new CEO and CFO have made efforts to right-size the company and refocus on its core banking and capital markets services by selling a partial stake in a recent acquisition. As a result, we believe the company should be able to expand sales opportunities, increase earnings and potentially return capital to shareholders.

Microprocessor Technology (MCHP): The chipmaker has been hit by a demand slump that some estimates are worse than the 2008 global financial crisis. However, management estimates that the second quarter of 2024 was likely the lowest, so we expect a recovery soon. The company has a broad product line that is sold to a variety of end markets, customers, and channels. In addition, the company has been reducing leverage and committed to returning capital to shareholders. We believe it will be well-positioned when the semiconductor cycle turns positive.

United Health Group (UNH): Like many managed care providers, United Health has been under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We believe the company is a high-quality stock with secular growth prospects in the managed care segment. The U.S. presidential election could create additional uncertainty in the near term, but we believe United Health will be able to rebound as pricing and utilization issues normalize.

Eliminated possession

Universal Health Service (UHS): We sold shares in this hospital operator because many of our original catalysts for the stock had materialized and we found better risk-reward opportunities elsewhere.

At quarter-end, the fund’s largest absolute exposures were in financials, industrials and healthcare. The largest overweights relative to the benchmark were in IT and communication services, while the largest underweights were in consumer discretionary and real estate.

Largest issuers (% of total net assets)

	Fund	Index
Bank of America Corp (BAC)	3.45	1.29
Wells Fargo & Co. (WFC)	3.42	1.01
Alphabet Inc. (GOOG),(GOOGL)	2.51	0.00
Exxon Mobil Corp (XOM)	2.40	2.46
Amazon.com Inc. (AMZN)	2.15	0.00
CBRE Group Inc. (CBRE)	2.13	0.13
Parker-Hannifin Corp (PH)	2.04	0.30
Johnson Controls International Sp. z o. o. (JCI)	2.02	0.21
Johnson & Johnson (JNJ)	1.96	1.66
ConocoPhillips (COP)	1.90	0.64
As of 30/06/24. Ownership status is subject to change and does not constitute a buy/sell recommendation.

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Sectoral division (% of total net assets)

Most important industries (% of total net assets)

Highlights of the performance

Stock selection in the communication services, financials, and consumer discretionary sectors contributed to the fund’s relative performance this quarter. Several of the fund’s largest investors came from these sectors.

Stock selection in industrials and healthcare took attention away from relative performance in the quarter. Selection and an underweight in consumer staples also hurt relative returns, as the sector was one of only two index sectors with a positive return in the quarter.

Performance Contributors

Alphabet: Google’s parent company was the fund’s largest shareholder due to strong quarterly profits and higher revenue that beat analysts’ expectations.

Oracle (ORCL): Despite weaker-than-expected earnings, Oracle shares rose after management announced a significant increase in bookings for Oracle Cloud Infrastructure (OCI), including deals with OpenAI, Microsoft and Google.

Philip Morris International (Prime Minister): The company reported higher-than-expected earnings and revenue growth, driven in part by increased revenue growth from its smoke-free product line.

Bank of America: The bank recorded lower net interest income, while non-interest income increased.

Micron Technology (MU): The chipmaker’s high-bandwidth memory business continued to benefit from increased demand driven by AI spending.

Factors that reduce performance

Intelligence (INTC): Shares fell after the semiconductor company lowered its second-quarter revenue and profit forecasts. Investors also appeared concerned about the future of its foundry business and its lack of growth in AI market share.

Bristol Myers Squibb (BMY): Despite an overall good quarter, weaker-than-expected sales of its cancer drug Opdivo dragged the stock down.

Walt Disney (NO): The company reported a mixed quarter in which profits beat analyst estimates but revenues were weaker than expected. Disney also gave weaker future outlooks due to a slowdown in its theme park business.

ConocoPhillips (COP): The company announced the acquisition of Marathon Oil in May. The deal is expected to boost earnings and scale Conoco’s production assets. However, shares fell on the news.

CVS Health (CVS): Shares fell after a weak earnings report. The pharmacy operator also lowered its full-year profit forecast due to rising health care costs and increased insurance usage.

Top contributors (%)

Issuer	Return	Contribution to return
Alphabet Inc.	20.82	0.44
Oracle Corporation	12.78	0.22
Philip Morris International Inc.	12.04	0.20
Bank of America Corporation	5.51	0.19
Micron Technology, Inc.	11.57	0.16

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Biggest critics (%)

Issuer	Return	Contribution to return
Intel Corporation	-29.60	-0.42
Bristol-Myers Squibb Company	-22.52	-0.29
Walt Disney Company	-18.85	-0.29
ConocoPhillips	-9.56	-0.25
CVS Health Corporation	-25.25	-0.24

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Standardized efficiency (%) as of June 30, 2024

		Quarter	Year to year	1 year	3 years	5 years	10 years	Since the beginning of its existence
Class A shares (MUTF:ACGIX) start: 08/01/46	NAV	-2.51	7.63	16.07	7.06	10.06	8.33	9.49
	Maximum load 5.5%	-7.88	1.71	9.67	5.05	8.82	7.72	9.41
Class R6 shares (MUTF:GIFFX) start: 24.09.12	NAV	-2.42	7.85	16.51	7.46	10.49	8.77	10.73
Class Y shares (MUTF:ACGMX) start: 19/10/04	NAV	-2.45	7.76	16.35	7.33	10.34	8.60	8.69
Russell 1000 Value Index (“USD”)		-2.17	6.62	13.06	5.52	9.01	8.23	–
Total Return Ranking vs. Morningstar Large Value Category (Class A Shares at Net Asset Value)		–	–	37% (428 of 1182)	41% (451 of 1103)	45% (455 of 1039)	52% (403 of 813)	–

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Expense ratios according to current prospectus: Class A: net: 0.79%, total: 0.79%; Class R6: net: 0.42%, total: 0.42%; Class Y: net: 0.54%, total: 0.54%. Performance data is historical and does not guarantee comparable future performance; current performance may be lower or higher. Visit Country Splash for the latest month-end results. Performance data reflects reinvested distributions and changes in NAV. Investment return and capital value will vary, so may have a gain or loss when you sell shares. Returns less than one year are cumulative; all others are annual. Index Source: RIMES Technologies Corp. If fees had not been waived and/or expenses reimbursed in the past, returns would have been lower. Results shown in net asset value do not include an applicable upfront sales charge, which would reduce results. Class Y and R6 shares have no sales charge; therefore, performance is at net asset value. Class Y shares are available only to certain investors. Class R6 shares are closed to most investors. Please refer to the prospectus for more details. For more information, including a prospectus and fact sheet, visit Invesco.com/ACGIX Not a deposit Not FDIC insured Not guaranteed by a bank May lose value Not insured by any federal government agency

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