Key takeaways
- The fund underperformed its benchmark its benchmark
- Underperformance mainly resulted from stock selection in the information technology, utilities and industrials sectors. Stronger stock selection in the communication services, health care and consumer staples sectors partially offset these results.
- Portfolio activity
- There was no significant change to the fund’s overall positioning during the quarter as we sought to keep most sector, factor and other macro-related exposures similar to the Russell Midcap Index.
- US equity market performance diverged during the quarter
- Larger cap growth stocks, mainly those related to Artificial Intelligence, continued to rally while other market segments declined. Mid-cap stocks generally underperformed the broader market, with the Russell Midcap Index down 3.35%.
Manager perspective and outlook
Equity market performance diverged in the second quarter. While stocks related to Artificial Intelligence continued to rally, other market segments declined. In this environment, the Russell Midcap Index declined 3.35% while the S&P 500 Index (SP500, SPX) gained 4.28%.
Stubbornly high inflation sent stocks broadly lower in April amid worries the US Federal Reserve (Fed) might be forced to keep interest rates higher for longer. However, in May and June, stocks rallied in response to evidence of cooling inflation. Consumer Price Index (‘CPI’) and Gross Domestic Product (‘GDP’) data came in below expectations, suggesting to us the US economy was finally slowing. Nonfarm payrolls also appeared to moderate, and the unemployment rate was largely unchanged at 4.0%. As expected, the Fed’s June meeting produced no change to the federal funds rate, and meeting minutes suggested the committee anticipates just one rate cut in 2024 as inflation has remained higher than its 2% target.
Regardless of market sentiment and near-term economic trends, our investment process favors better-managed companies with strong balance sheets and competitive positioning. We seek to outperform through stock selection while minimizing any top-down macro, factor and sector exposures relative to the index.
Portfolio positioning
We maintain our valuation discipline and our focus on companies with competitive advantages and skilled management teams that we believe are executing better than their peers. These companies historically tend to have higher profit margins and returns on invested capital, rising market shares and consistently strong pricing power. As of quarter end, all sector weights were within +/- 4% of the Russell Midcap Index.
The largest additions to the fund during the quarter included the following:
PPL (PPL) is in our view a well-positioned utility with a strong balance sheet relative to its peers and stands to benefit from data center growth in its service area.
Microchip Technology (MCHP) is in our view a semiconductor manufacturer with a promising outlook that may also benefit as a cycle of negative earnings revisions ends.
Fortune Brands (FBIN) is a home and security product supplier with what we consider an attractive risk-reward profile.
Vertiv (VRT) provides power delivery and management systems for data center servers. We believe it is well-positioned for expected growth of AI capabilities and data centers.
Sysco (SYY) is a leading food service industry distributor with what we consider an attractive risk- reward outlook.
Casella Waste (CWST) is a leading waste company with advantageous market positioning in the US Northeast.
Intra-Cellular (ITCI) has what we consider a promising pipeline of small molecule drugs to treat neuropsychiatric and neurological diseases and other disorders of the central nervous system.
Positions sold during the quarter included the following:
Parker Hannifin (PH) was sold after our investment thesis largely played out; we redirected the capital to Vertiv.
Republic Services (RSG) was sold because we saw limited additional upside and invested the proceeds in Casella Waste.
WEC Energy (WEC) was sold because we lost conviction in its upside potential.
ASGN (ASGN) may take longer to realize potential upside than previously expected given a softer IT spending environment so we moved the capital to a new position in Fortune Brands.
Biogen (BIIB) was sold as a source of funds for stocks where we had higher conviction and viewed as having more upside potential.
Autodesk (ADSK) was sold because it began to show deteriorating fundamentals.
Lamb & Weston (LW) reported disappointing results and provided forward guidance that made us view our case for upside potential as less likely in the near term.
Top issuers (% of total net assets)
Fund |
Index |
|
Tenet Healthcare Corp (THC) |
1.86 |
0.12 |
Raymond James Financial Inc (RJF) |
1.80 |
0.21 |
Tyler Technologies Inc (TYL) |
1.80 |
0.19 |
Howmet Aerospace Inc (HWM) |
1.75 |
0.27 |
Xylem Inc/NY (XYL) |
1.68 |
0.29 |
Trade Desk Inc/The (TTD) |
1.68 |
0.39 |
Hubbell Inc (HUBB) |
1.68 |
0.18 |
TopBuild Corp (BLD) |
1.63 |
0.11 |
Marvell Technology Inc (MRVL) |
1.63 |
0.54 |
Curtiss-Wright Corp (CW) |
1.61 |
0.09 |
As of 06/30/24. Holdings are subject to change and are not buy/sell recommendations. |
Sector breakdown (% of total net assets)
Top industries (% of total net assets)
Performance highlights
The fund’s Class A shares at net asset value (NAV) returned -4.11% for the quarter, underperforming the Russell Midcap Index, which returned -3.35%. The fund’s underperformance mainly resulted from stock selection in the IT, utilities and industrials sectors. Stronger stock selection in the communication services, health care and consumer staples sectors partially offset these results.
Contributors to performance
Tenet reported a strong quarter driven by revenue growth in its ambulatory surgery centers (‘ASC’) and hospitals. More procedures have been moving from acute care hospitals into ambulatory surgical centers, which has been helping to boost the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) margin.
Tyler Technologies outperformed as management reported strong results amid a healthy demand backdrop. The company has benefited from its leadership position in end- to-end software information management solutions for state and local governments.
Pinterest outperformed due to accelerating revenue growth along with user growth and increased user engagement. The company appears to have benefited from product improvements that provided better user recommendations and ad targeting.
Detractors from performance
MongoDB (MDB) reported disappointing results as both new customer additions and growth within its installed base had slower starts for its fiscal year. The pressure appeared to be macroeconomic related, similar to commentary from multiple software vendors. Mongo has continued to gain share in the large database software market.
Lincoln Electric (LECO) lagged after reporting softer-than-expected first quarter sales while management provided guidance that reduced forward expectations for 2024. The company has been affected by mixed global manufacturing trends as well as headwinds from higher interest rates and customer inventory destocking.
Summit Materials (SUM) underperformed after reporting soft volumes and providing a cautious outlook suggesting that larger private non-residential construction projects might be delayed if interest rates remain higher for longer.
Top contributors (%)
Issuer |
Return |
Total effect |
Tenet Healthcare Corporation |
26.56 |
0.47 |
Tyler Technologies, Inc. |
18.30 |
0.28 |
Pinterest, Inc. (PINS) |
27.11 |
0.27 |
Howmet Aerospace Inc. |
13.51 |
0.21 |
BJ’s Wholesale Club Holdings, Inc. (BJ) |
16.11 |
0.21 |
Top detractors (%)
Issuer |
Return |
Total effect |
MongoDB, Inc. |
-30.30 |
-0.35 |
Lincoln Electric Holdings, Inc. |
-25.87 |
-0.29 |
Summit Materials, Inc. |
-17.86 |
-0.22 |
Paylocity Holding Corporation (PCTY) |
-23.28 |
-0.21 |
LKQ Corporation (LKQ) |
-21.60 |
-0.19 |
Standardized performance (%) as of June 30, 2024
Quarter |
YTD |
1 Year |
3 Years |
5 Years |
10 Years |
Since inception |
||
Class A shares (MUTF:OPMSX) inception: 08/02/99 |
NAV |
-4.11 |
4.79 |
8.91 |
2.97 |
8.49 |
7.15 |
9.67 |
Max. Load 5.5% |
-9.39 |
-0.99 |
2.90 |
1.05 |
7.27 |
6.54 |
9.42 |
|
Class R6 shares (MUTF:OPMIX) inception: 10/26/12 |
NAV |
-4.01 |
4.98 |
9.33 |
3.36 |
8.93 |
7.59 |
10.41 |
Class Y shares (MUTF:OPMYX) inception: 08/02/99 |
NAV |
-4.05 |
4.92 |
9.21 |
3.23 |
8.77 |
7.42 |
10.05 |
Russell Midcap Index (‘USD’) |
-3.35 |
4.96 |
12.88 |
2.37 |
9.46 |
9.04 |
– |
|
Total return ranking vs. Morningstar Mid-Cap Blend category (Class A shares at NAV) |
– |
– |
82% (358 of 429) |
61% (219 of 401) |
76% (269 of 368) |
77% (182 of 255) |
– |
Expense ratios per the current prospectus: Class A: Net: 1.06%, Total: 1.06%; Class R6: Net: 0.69%, Total: 0.69%; Class Y: Net: 0.82%, Total: 0.82%. Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit Country Splash for the most recent month-end performance. Performance figures reflect reinvested distributions and changes in net asset value (NAV). Investment return and principal value will vary so that you may have a gain or a loss when you sell shares. Returns less than one year are cumulative; all others are annualized. As the result of a reorganization on May 24, 2019, the returns of the fund for periods on or prior to May 24, 2019 reflect performance of the Oppenheimer predecessor fund. Share class returns will differ from the predecessor fund due to a change in expenses and sales charges. Index source: RIMES Technologies Corp. Had fees not been waived and/or expenses reimbursed in the past, returns would have been lower. Performance shown at NAV does not include the applicable front-end sales charge, which would have reduced the performance. Class Y and R6 shares have no sales charge; therefore performance is at NAV. Class Y shares are available only to certain investors. Class R6 shares are closed to most investors. Please see the prospectus for more details. For more information, including prospectus and factsheet, please visit Invesco.com/OPMSX Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value Not Insured by any Federal Government Agency |