Clas Olsson credits a three-step discipline for the award-winning performance of Invesco International Growth Class, which won in its category at the Canadian Investment Awards gala in December.
"We consider ourselves to be quality-growth managers," says Olsson, "who use an investment process that we refer to as EQV: earnings, quality and valuation. We've always had a focus on strong balance sheets, so these are companies that don't risk going out of business."
The first step in the investment process is seeking companies with good earnings power throughout the business cycle, with potential for earnings growth. In the second step, the focus is on the quality of the company, based in part on the cash flow the business generates and how management reinvests that cash. The Invesco team's third step entails making sure they don't overpay for growth and that the risk-reward ratios are attractive.
Olsson is the chief investment officer of Invesco Advisers Inc.'s Houston-based international investment unit. Also a senior portfolio manager, he has managed Invesco International Growth Class, alongside portfolio manager Barrett Sides, since the fund's inception in July 2000. The 12-member team led by Olsson manages more than US$11 billion in the international-growth mandate.
Invesco International Growth is diversified among large-cap, mid-cap and small-cap stocks. The fund currently holds approximately 63% in large caps, defined as companies with market capitalizations of more than US$9.7 billion. Another 17% is held in mid-caps, with market caps of between $3.3 billion and $9.7 billion.
A substantial 20% of the portfolio is held in small-cap companies. "That's a much higher proportion than your typical international fund or the benchmark weights" (of the MSCI EAFE Index), Olsson says.
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Like other funds in the International Equity category, Invesco International Growth does not invest in Canada and the U.S. It has the flexibility to invest up to 35% in emerging markets, but avoids the small "frontier" markets of the developing world.
While not constrained by maximum or minimum weights in sectors, the fund prudently diversifies across sectors with its 70 to 100 holdings. But it isn't sector-neutral either. Compared with the MSCI EAFE benchmark, the fund is currently significantly overweight in consumer-discretionary and consumer-staples stocks.
Meanwhile, the managers are underweight in financial services. A large portion of the overseas financial-services universe is made up of European stocks, which the Invesco team does not consider attractive because of current market conditions in Europe.
Olsson, 45, gained early insights into business as the son of a self-employed accountant. Born and raised in Sweden, Olsson majored in business and accounting in high school. In 1986, after completing a mandatory year in the military, he entered the Swedish naval academy.
Olsson credits his early business experience, along with Peter Lynch's book, Beating the Street, for his pursuit of investment management. After spending a year at Stockholm University, Olsson transferred to the University of Texas in Austin, graduating with a bachelor of business administration in 1994.
After graduation, Olsson was recruited by the then named AIM Capital Management, a unit of what is now Invesco Advisers. He started out as an international analyst on the European and Canadian equity desk. In 1997, after being promoted to portfolio manager, Olsson joined a team that was responsible for U.S.-based funds.
In managing the international mandate, Olsson has historically had an annual portfolio turnover of "between 20% and 50%." While most companies are held for at least a couple of years, some of them have been in the fund for many years, he says.
For example, Novo Nordisk, a Danish health-care leader in diabetes care products, has been in the Invesco portfolio for almost a decade. "It's a company that demonstrates clearly that it has underlying growth with structural demand for its products," says Olsson.
Diabetes is becoming increasingly prevalent in both the developed markets as well as developing markets, so there is growing need for Novo Nordisk's products, especially with an aging population. The company tends to be on the cutting edge of the industry and is coming out with a new product, Olsson adds.
Nestlé SA, a world leader in food and beverage, is another long-term holding that meets Olsson's investing parameters. "It's definitely one of those higher-quality, steady-growth companies," he says, "with over 40% of sales coming from emerging markets." As well, he adds, the company's valuations are still considered attractive.
While the fund holds more than 60% of its portfolio in European-based companies, "it doesn't really matter if you're based in Europe or not if you have one of the leading franchises in the world," says Olsson. "Many of the companies that we own are global in scope and have exposure to strong growing areas and business segments. And from an overall perspective, you have these Asian markets that are growing very, very fast, and emerging markets have tremendous growth."
