52739 finalu gsc erik esselink citywire may13

Invesco Perpetual Global smaller companies: an attractive asset class for active investors

Citywire

May 2013

Erik Esselink This presentation is for Professional Clients

only and is not for consumer use. Fund Manager, European Equities

Contents

2

Why global smaller companies?

Why have global smaller companies outperformed?

Invesco Perpetual Global Smaller Companies Fund

Appendix

Why global smaller companies?

Why global smaller companies? Key reasons

Fertile hunting ground for active managers

Strong long-term performance

Lower volatility than regional small cap equities and comparable volatility to global large cap equities

Diversification potential against bonds and large cap equities

4

Why global smaller companies? They provide a fertile hunting ground

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Source: Bloomberg as at 31 March 2013.

MSCI World index 1608 members US$31.38 trillion market cap.

MSCI World Mid Cap index 879 members US$5.64 trillion market cap.

MSCI ACWI Small Cap index 6016 members US$6.38 trillion market cap.

MSCI Emerging Markets index 823 members US$7.73 trillion market cap. MSCI

Frontier Emerging Markets index 185 members US$0.82 trillion market cap.

Economic growth

Emerging Developed

Corp

ora

te g

row

th

Cap

italisati

on

By capitalisation

By number of companies

75%

13%

12%

25%

13%

62%

Large cap

Mid cap

Small cap

Why global smaller companies? They have a history of outperformance

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Source: Choi et al & Howard University, Journal of Business & Economics Research, October 2010

Over the long-term…

Smaller companies have outperformed bonds and larger companies

10-year performance 1926 to 2007 (%)

Why global smaller companies? They are not as volatile as you might think…

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Past performance is not a guide to future performance Source: Bloomberg as at 31 March 2013. Performance figures are in GBP and represented by the respective MSCI indices.

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0 5 10 15 20 25 30 35

An

nu

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Annualised risk

Global small caps

Global large caps

Singapore small caps

Canada small caps

Australia small caps

EAFE large caps

Emerging markets large caps

US small caps

UK small caps

EAFE small caps Japan small caps

Hong Kong small caps

German small caps

Return to risk (standard deviation) – small versus large companies 15 years to 31 March 2013

Why global smaller companies? They offer diversification potential

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Source: Choi et al & Howard University, Journal of Business & Economics Research, October 2010. Bottom chart source: Bloomberg as at 31 March 2013

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16

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-0.10 -0.05 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00

Stoxx 600 Stoxx 50

Stock correlation: European smaller & larger companies

Lower correlation Higher correlation

5 year correlation (1926 to 2007)

Treasury bills Intermediate government

bonds

Long government

bonds

Long corporate

bonds

Large cap equities

Intermediate government bonds

0.85

Long government bonds

0.68 0.93

Long corporate bonds 0.70 0.95 0.98

Large cap equities -0.03 0.03 0.13 0.13

Small cap equities -0.37 -0.28 -0.19 -0.17 0.63

Over the long-term…

Smaller companies have demonstrated diversification potential against bonds and larger companies

Why have global smaller companies outperformed?

Why have global smaller companies outperformed? Overview

Smaller companies are less well researched

Smaller companies demonstrate greater alignment of interest through management/family/employee ownership

Investing in smaller companies helps to avoid investing in valuation bubbles

Smaller companies have attractive growth potential

Smaller companies have made quicker recoveries from market crises

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Why have global smaller companies outperformed? Smaller companies are under researched

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35

Decile 1

Decile 2

Decile3

Decile4

Decile5

Decile6

Decile7

Decile8

Decile9

Decile10

MSCI World Small Cap MSCI World

Research – coverage by number of analysts Smaller companies are less well

covered by sell side analysts

Smaller companies require more in-house research by fund managers

The result is a less efficient market

Why have global smaller companies outperformed? Ownership and the alignment of interests is greater

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Source: Bloomberg as at 30 June 2012.

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World North America Europe Asia Pacific EmergingMarkets

Small cap companies Large & mid cap companies

Ownership – management/founders/employees % of ownership shares outstanding

The alignment between shareholder interests and the management rises with insider ownership

Insider ownership is a positive internal control mechanism on decision-making

State ownership tends to be higher amongst larger companies

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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Market

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Share price Market cap

Nokia - 1997 to present

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Apple Inc. -2002 to present

Why have global smaller companies outperformed? They are better positioned to avoid valuation bubbles

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When smaller company share prices rise significantly, there is a natural ‘sanity check’. They become large companies - smaller company investors need to sell

When large company share prices rise significantly, there is no ‘sanity check’ – they become a larger weight in the index and more difficult for active investors to ignore.

In April 2000, Nokia comprised circa 3.6% of the MSCI Europe index

In September 2012, Apple Inc. accounted for 4.9% of the S&P 500 index

For smaller companies, the largest index weight is circa 0.20% - making it easier for active investors to ignore 0

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Market

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Kabel Deutschland - 2000 to present

‘Sanity check’ when smaller companies become larger

Why have global smaller companies outperformed? Smaller companies have attractive growth potential

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0

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Energy Materials Industrials Cons Disc. Cons StaplesHealth Care Financials IT Telecoms Utilities

MSCI World Small Cap MSCI World

MSCI long-term EPS growth rates (%)

Source: Bloomberg as at 31 December 2012. Estimated long-term growth EPS aggregated.

Why have global smaller companies outperformed? Global smaller companies have recovered more quickly

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Source: Bloomberg as at 31 March 2013. Based on price data. Return multiple = price only basis returns.

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1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748

Retu

rn

mu

ltip

le

Months

MSCI World Small Cap (2003 to 2007)

Russell 2000 (1982 to 1986)

Russell 2000 (1990 to 1994)

MSCI World Small Cap (2009 to today)

S&P 500 (1982 to 1986)

S&P 500 (1990 to 1994)

MSCI World (2003 to 2007)

MSCI World (2009 to today)

Market set-backs: post recession and correction (return multiples)


Invesco Perpetual Global Smaller Companies Fund Overview

Long-term focused, valuation driven and fundamental investors

Expert asset allocation combined with regional led, research driven, fundamental stock selection

Experienced and stable investment team (average of 24 years industry experience and 13 years tenure)

Regional expertise provides deep research capabilities, supported by regional equity investment teams

A dual fund manager/analyst role which provides ownership and accountability for each investment decision.

Demonstrable long-term track record with a consistent investment approach.

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Source: Invesco Perpetual as at 31 March 2013.

Invesco Perpetual Global Smaller Companies Group Deep research capabilities and expert regional allocation

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Invesco Perpetual as at 31 March 2013

Specialist regional fund managers Company research and sub-portfolio construction

Name Role Years’ experience

Erik Esselink Europe ex UK - regional specialist 13

Juliet Ellis North America – regional specialist 32

Jonathan Brown UK – regional specialist 15

Ian Hargreaves Asia Pacific – regional specialist 19

Paul Chesson Japan – regional specialist 22

Dean Newman Emerging Markets ex Asia – regional specialist 28

Management Asset allocation

Nick Mustoe Chief Investment Officer, Invesco Perpetual 28

Strategy oversight and implementation

Martin Weiss Investment Strategist 22

Arwel Green Product Manager, Global Equities & Multi-Asset 12

Regional expertise provides deep research capabilities

Invesco Perpetual Global Smaller Companies Fund Investment process overview

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A portfolio of circa 400 names

Stock driven investment

approach

Expert, valuation-led regional asset allocation

Incremental, valuation-led asset allocation

Medium to long term

strategic asset allocation (not dynamic)

Conviction based asset allocation

Macro and micro inputs both factor into the final decision

Asset allocation

Stock ideas generated from the investment universes of each specialist regional investment team Stocks attractive given: Fundamentals Valuation Timeliness Outlook Risks

Stock candidates

Autonomously managed by specialist regional portfolio manager

Conviction weighted

portfolios Medium to long term

investment horizon Portfolio reflects macro

conditions, idea generation and confidence

Sell discipline Investment thesis no longer

valid Price target reached More attractive

opportunities elsewhere

Regional sub-portfolio Portfolio

Rigorous security selection meets valuation-led asset allocation

Invesco Perpetual Global Smaller Companies Fund Stock example - C&C Group

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Source: Invesco Perpetual/Bloomberg as at 30 April 2013.

Irish drinks group focused on Irish cider and Scottish beer

Strong, defendable market shares in Ireland and the UK

Growth opportunities in US and Australia could be game changing

Focused on profitable organic growth and smart M&A

Net cash (10% of market cap)

PER 13.1x 2012

14.5% ROCE (sustainable) 0.5

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C&C Group share price (EUR) Relative to HSBC Smaller Companies ex UK (EUR)

C&C Group

Invesco Perpetual Global Smaller Companies Fund Stock example – Fondiaria-Sai

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Italy’s largest motor insurer, created via merger of 4 smaller companies in August 2012

Uncertainty was high during the merger period

We felt that the market was overly fearful and that the risk was lower

In our view, the valuation was compelling while industry fundamentals were (and are) improving

At the time of purchase, the stock traded at an extremely low price to book ratio, relative to an improving ROE

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Fondiaria-Sai share price (EUR) Relative to HSBC Smaller Companies ex UK (EUR)

Fondiaria-Sai

Invesco Perpetual Global Smaller Companies Fund Stock example - Nutreco

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A Dutch animal nutrition and fish feed company

Has a long history of good return on capital and consistent shareholder focus (good dividend growth)

We believe that management’s new five year plan is achievable and that the market does not yet recognise the potential

Dividend yield has consistently grown over last 10 years and is currently 3%

PER is 10.5x 2013 earnings

In our view, this is an attractive operational business with strong barriers to entry and disciplined capital allocation.

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Nutreco share price (EUR) Relative to HSBC Smaller Companies ex UK (EUR)

Nutreco

Invesco Perpetual Global Smaller Companies Fund Regional allocation

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Source: Invesco Perpetual as at 31 March 2013. *Emerging Europe, Middle East and Africa.

Asset allocation decisions

(Q1, 2013)

March

Trim Europe

Add Asia

February

Trim Japan

Add to US

Add to Asia

January

No change

30.50

21.07

9.30

16.00

12.94

1.82 3.65 4.05

55.79

11.04

7.25

10.27 9.27

3.16 1.93 1.27

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Invesco Perpetual Global Smaller CompaniesFund

MSCI ACWI Small Cap index

Portfolio breakdown (%)

Invesco Perpetual Global Smaller Companies Fund An attractive risk/return profile

24

Past performance is not a guide to future performance Source: Bloomberg as at 31 March 2013. Performance figures are provided for the Acc share class of the Invesco Perpetual Global Smaller Companies Fund and are shown in GBP on a mid-to-mid basis, inclusive of net reinvested income and net of the annual management charge and all other fund expenses. The figures do not reflect the entry charge paid by individual investors. Other data points represented by the respective MSCI indices.

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Annualised risk

IP Global Smaller Companies Fund (GBP)

Global small caps

Global large caps

Singapore small caps

Canada small caps

Australia small caps

EAFE large caps

Emerging markets large caps

US small caps

UK small caps

EAFE small caps Japan small caps

Hong Kong small caps

German small caps

Return to risk (standard deviation) – small versus large companies 15 years to 31 March 2013

Invesco Perpetual Global Smaller Companies Fund Performance summary

25

Past performance is not a guide to future performance Source: Invesco as at 31 March 2013. Fund performance figures are shown for the Acc share class, in GBP on a mid-to-mid basis, inclusive of reinvested income and gross and net respectively of the annual management charge and all other fund expenses. The figures do not reflect the entry charge paid by individual investors. Benchmark source: Invesco, net return, in GBP.

Annualised gross regional returns (%)

3 years 5 years


Returns versus regional MSCI Small Cap benchmark

North America +1.90 -2.03

Europe ex UK +1.95 +3.59

UK +0.67 -1.14

Japan -6.94 +6.82

Asia ex Japan +10.07 +9.02

Latin America +10.10 +3.95

Emerging Europe +6.57 +5.12

Middle East & Africa - -

3 to 5 years

70%

30%

Target contribution to excess return

Security selection

Regional asset allocation

Annualised gross returns (%) 3 years 5 years


12.65 13.98

MSCI ACWI index 10.54 12.02

Out/Underperformance +2.11 +1.96

Annualised net returns (%) 3 years 5 years


10.77 12.08

MSCI ACWI index 10.54 12.02

Out/Underperformance +0.23 +0.06

Appendix

Invesco Perpetual Global Smaller Companies Fund Sector weightings

27


Sector Fund (%) Active weight MSCI ACWI Small Cap index (%)

Industrials 21.58 17.34

IT 13.55 12.38

Financials 22.98 22.28

Telecoms 1.13 0.87

Health Care 8.71 8.46

Consumer Discr. 15.30 15.86

Consumer Staples 3.71 4.55

Energy 4.64 5.94

Utilities 1.11 3.14

Materials 6.78 9.17

4.24

1.17

0.70

0.26

0.25

-0.56

-0.84

-1.30

-2.03

-2.39

Invesco Perpetual Global Smaller Companies Fund Top ten holdings

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Stocks

Country Sector Fund (%)

Suruga Bank Japan Financials 1.11

Total Gabon France Energy 0.96

Daphne International China Consumer Discretionary 0.83

HAL Trust Netherlands Financials 0.83

Resona Japan Financials 0.74

Taiyo Yeden Japan Information Technology 0.66

Hutchison Whampoa Hong Kong Industrials 0.65

Lisi France Industrials 0.64

Daiwa Securities Japan Financials 0.64

Havas France Consumer Discretionary 0.64

Important information

This presentation is for Professional Clients only and is not for consumer use.

Where Erik Esselink has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals.

Past performance is not a guide to future returns.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell.

Smaller company funds are higher risk than funds that can invest in larger company sizes. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities.

The Invesco Perpetual Global Smaller Companies Fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.

For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents and the Supplementary Information Document. This information is available using the contact details shown.

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Issued by: Invesco Fund Managers Limited. Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority