In the second quarter of 2026, the Invesco Small Cap Value Fund strategically rebalanced its holdings, emphasizing opportunities for valuation enhancement and adapting to prevailing market trends. Key adjustments included a focus on companies with clear paths to business streamlining and shareholder returns, such as Teleflex. Concurrently, the fund divested from top-performing assets like Orion, reallocating capital to new ventures with higher perceived intrinsic value potential. This proactive management reflects a diligent approach to navigating market dynamics, including inflationary pressures and shifts in monetary policy, while capitalizing on emerging sectors like artificial intelligence.

During the period under review, U.S. equities demonstrated resilience, experiencing rallies despite ongoing volatility fueled by inflation and evolving monetary policy expectations. Against this backdrop, the fund's Information Technology (IT) sector selections emerged as significant contributors to both relative and absolute performance. This was largely driven by substantial gains in holdings related to artificial intelligence (AI) and semiconductor technologies, underscoring the profound impact of broad-based AI investment demand on market valuations.

A notable addition to the portfolio was Teleflex (TFX), a medical device company. The investment thesis for TFX centered on management's commitment to simplifying operations and enhancing shareholder value through capital returns. These initiatives are expected to unlock significant valuation improvements for the company. Furthermore, the fund initiated a position in ESAB, a global leader in welding and cutting equipment. The appeal of ESAB stemmed from its robust margin profile, strategic acquisition pipeline, and anticipated benefits from a cyclical recovery in industrial demand.

Conversely, the fund made deliberate decisions to exit certain positions. Orion stock, having delivered strong performance, was sold to redeploy capital into other opportunities that presented more compelling upside potential relative to their intrinsic value. Similarly, Sealed Air, a packaging solutions provider, was divested after being acquired at a premium. Although the acquisition was favorable, the fund opted to reallocate capital. MSC Industrial Direct, an industrial distributor, was also sold as its upside potential was deemed limited following successful operational improvements, prompting a shift towards more promising investment ideas.

The strategic adjustments during this quarter highlight the fund's commitment to active management and its ability to adapt to changing market landscapes. By identifying and investing in companies poised for growth and shareholder value creation, while tactically divesting from those reaching their full potential, the fund aims to maintain a robust and responsive portfolio.