Invesco Canada blog

Insights, commentary and investing expertise

Working capital: The worst kind of expense


July 20, 2017
Subject | Active management | Institutional | Trimark

As active portfolio managers, we seek to identify and exploit inefficiencies in the marketplace. One major inefficiency, in my view, is the common fixation on earnings-based valuation metrics. Focusing on free cash flow, rather than net income, EBIT or EBITDA, allows us to find valuation arbitrage opportunities based on gaps in accounting earnings and free cash flow.

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Why European banks are so unattractive


December 29, 2016
Subject | Active management | Institutional | Macro views | Trimark

Our Europe-focused mutual fund has consistently stayed away from investments in the European financial sector. Why? European banks and insurers tend to fall short of our measures of a quality business – based on our research, we believe they have lower growth profiles and lower returns on invested capital and tend to offer undifferentiated products. We have differed greatly from the index in this regard, and as a high-conviction investor, I’m very comfortable with that.

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Brexit sell-off creates entry point

In the lead-up to the referendum on the U.K.’s continued membership in the European Union, certain British bookmakers were offering four-to-one odds on bets the U.K. would opt to exit, meaning they anticipated a mere 20% probability of a leave win. At the same time, both sides were running neck and neck in the polls, rationally implying around a 50% chance of a leave vote result. This opportunity to receive a profit equal to four times one’s initial investment on an outcome estimated to be 50% likely, while losing only one’s initial investment the other one time out of two was an obvious example of a mispriced bet. Similar to the U.K. bookmakers mispricing of the Brexit bet, the market occasionally misprices stocks, placing the odds either in favour of or against the investor.

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What will the impact of a “Brexit” be on European equities?

As “Brexit” dominates news reports and media commentary, there has been a significant sell-off in both U.K. and European equities ahead of the U.K.’s referendum on its continued EU membership. In addition, there has been significant depreciation of the pound. Despite this volatility leading up to the vote, I believe that either outcome will ultimately have little impact on the U.K. economy over the long term.

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Brexit