Henderson European Focus Trust Fund Manager Commentary – May 2022

Tom O’Hara and John Bennett, Portfolio Managers of Henderson European Focus Trust, provide an update on the Trust highlighting the key drivers and detractors of performance, recent portfolio activity, and the outlook for European equity markets. Macro backdrop​ Conscious not to beat readers over the head with the now-familiar themes of commodity price inflation, supply-chain disruption, rising living costs and declining consumer confidence – all set against the backdrop of ongoing war and a Western world interest rate-hike cycle – it suffices to say these remain key obstacles to navigate on both a macro and micro basis. ​ Trust performance and activity​ These obstacles were reflected in the sector attribution for the Trust in May: the greatest contributors were the Trust’s overweight positions in energy and materials, while the greatest detractors were the  underweight in financials (banks specifically) and our reduced but still overweight positions in consumer discretionary and consumer staples. We remain resolutely focused on our pragmatic, style-agnostic approach to stock-picking. In May, we initiated a new position in Universal Music Group, while closing the position in Legrand. More recently, in June, we established a holding in Bayer, a conglomerate which, based on recent history, might be summed up as “troubled and cheap”, although we sense the wind is finally turning for both its Pharmaceutical and Crop Science divisions. Universal Music Group by contrast, could be described as “untroubled and not cheap” – a high quality business in which we saw an attractive entry point following some share price weakness. We like change and we care about valuation.​ Outlook/strategy​ As we look to summer and the remainder of 2022, we are closely watching the development of China’s COVID-related restrictions and corresponding efforts to stimulate its economy, where the re-opening of Shanghai has recently lifted sentiment towards China-exposed luxury names. However, there is yet to be sufficient tangible evidence of a “business as usual” approach to monetary and fiscal support that would get markets more comfortable with the likes of industrials, for example. We will also be glued to the frequent and often-cryptic updates from central bankers in order to ascertain just how committed they are to higher rates and quantitative tightening in the face of deteriorating macro data points – it was notable in May that US Treasury yields took a breather from their ascent to flirt with a “peak yields” narrative. Simply put, on a market, sector and stock-specific level we will be asking the question: when is the bad news fully priced in. ​ Glossary Expand Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures. ​ Fiscal policy – Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.​ Monetary policy – The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of mon​ Quantitating tightening – Quantitative tightening (QT) is a contractionary monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy. ​ Valuation metrics – Metrics used to gauge a company’s performance, financial health and expectations for future earnings e.g. price to earnings (P/E) ratio and return on equity (ROE).