Fund Manager July 2021 Commentary – Henderson EuroTrust

The Trust underperformed in July and this can be attributed to some stock specific issues.

First, within gaming, where we have positions in Prosus, Embracer and Stillfront, we have suffered from a couple of issues. Prosus has been hit by the ongoing regulatory clampdown in China which has impacted the shares of its largest portfolio company Tencent. In addition, all three gaming companies are suffering from the perception that they were significant beneficiaries of Covid-19 restrictions and so should have a tougher year in 2021. We have taken action here and reduced our Prosus position from >5% to around 2.7% prior to the recent regulatory headlines and have since taken it down further to 1.5%. We think that Prosus and Tencent are both deeply undervalued, but the lack of clarity on Chinese regulation has forced us to reduce our exposure. A few months ago, we also reduced our weighting in Embracer from a ~3% position to 1.5% to reflect the uncertainty over near-term numbers. These trades have limited the impact that our prior positioning in gaming would have had on performance.

Second, Grifols, the Spanish blood-plasma company has continued to underperform. We see this as a transitory issue related to the knock-on impact of Covid-19 restrictions on the company’s ability to source their plasma proteins (less people able/willing to give blood). We have added to this position in recent months and see it as deeply undervalued (40%) versus its closest peer CSL.

Third, Faurecia, the French auto parts company, announced strong results during the month, but the results were overshadowed by concerns that they may try to buy the German lighting and electronics company Hella. Share price weakness in Faurecia cost us 26 basis points during the month. We have maintained our positioning.

Recent earnings results have largely been favourable and have backed up our conviction in a number of our holdings. We have not made a lot of trades recently. Despite the recent underperformance after a very strong 2020, we are happy with our positioning and see significant potential in our key holdings. Our most recent new buys include Adidas, Danone and Beiersdorf. All three of these new positions are working well and have been supported by strong earnings releases in the case of Adidas and Danone.

We are confident in our positioning and will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.

Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.

References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Janus Henderson Investors, one of its affiliated advisor, or its employees, may have a position mentioned in the securities mentioned in the report.