Henderson EuroTrust – Finding quality companies for an uncertain environment
Quality matters, goes the adage, and like most traditional expressions it captures an essential truth in life. It is also the unofficial motto of Henderson EuroTrust managed by Portfolio Manager, Jamie Ross.
6 minute read
The fortunes of even the most successful companies can be buffeted by turbulent economic times, but the best businesses always weather the storm or even thrive in the adversity. At Henderson EuroTrust (EuroTrust), we look for companies that have what it takes to survive and thrive whatever the economic weather. Put simply, EuroTrust aims to provide investors with a superior total return from a portfolio of high quality European (excluding the UK) companies over the long-term.
There are of course many dimensions to quality, but we like to focus on companies that have a sustainable competitive advantage within their industry, have strong balance sheets and high and sustainable return on invested capital. These companies have strong pricing power, meaning they can deal with rising input costs while still generating growing earnings, no matter the economic environment. High-quality businesses capable of generating returns above their cost of capital whilst allocating excess capital appropriately are the perfect holdings for our portfolio in these uncertain times.
Here are a few of our favorites that have been successfully navigating a challenging environment:
Nestle – the defensive powerhouse
Swiss group Nestle has historically been best known for its confectionery and as Switzerland’s biggest chocolate company that reputation is well earned, but its business has a far greater breadth and depth than its historic reputation would suggest. These days, Nestle’s business is far more focused on fast growing areas such as coffee and petfood. From Nescafe coffee to Rowntree’s Fruit Gums, and Felix cat food to Shredded Wheat, Nestle’s 2,000 brands are embedded in the lives of consumers across 188 countries. These are the kind of staple products that sustain sales through thick and thin and the group has a long-term strategy for managing its vast portfolio of products for the long term.
The group’s global scale and brand has helped it to not just weather the difficult Covid years but continue to grow. Organic growth (excluding acquisitions) was 8.3% in 2022 and total sales reached CHF94.4 billion (£84 billion). Underlying trading profits rose 17% and dividends were increased for the 28th year in succession.
As a defensive powerhouse Nestle hits the sweet spot.
Novo Nordisk – the sustainable growth leader
Achieving sustainable growth in the pharmaceuticals sector is all about balancing return to shareholders with long-term investment in the research and development that will deliver the products and revues of the future.
It is a balance that Danish pharmaceuticals group Novo Nordisk has achieved with aplomb. In its financial year ending in 2022 Novo Nordisk reported net sales up 26%, pre-tax profits up 17% and raised its dividend by 19%. These results were the fruits of consistent and focused allocation of investment capital to research and development. The group’s products include therapies for hemophilia, hormone replacement and diabetes, in which it is a global market leader.
The latest success to emerge from its long-term R&D investment has been its new treatments for obesity which have helped drive a stellar rise in sales in the first three months of 2023 with the prospect of much more to come.
BE Semiconductors Industries – the adaptable innovator
BE Semiconductor – known as Besi for short – is one of the newest additions to the EuroTrust Portfolio. The semiconductor or ‘chip’ sector is notoriously cyclical but being in a business with ebbs and flows does not mean a company is not fundamentally high quality. Besi’s quality is shown through its consistently high gross profit margins which suggest a strong degree of pricing power.
Dutch-based Besi designs, makes, sells and services specialist ‘packaging’ equipment for the semiconductor manufacturing industry and its clients include Intel, Infineon, and TSMC.
Besi has proved an agile player able to adapt to the changing demands of its market while also always being prepared for the next pivot in the electronics sector. This adaptability is built-in to its business model and Besi designs updated versions of its main products every 1-2 years. Besi maintains a very strong balance sheet which has allowed significant payouts to investors while also allowing heavy investment in innovation. Research and development spending rose almost 23% last year.
Surviving and thriving through turbulent times
Companies that demonstrate defensiveness, sustainable return on invested capital, growth and agility are the ones that thrive across the economic cycle. Many are so deeply embedded in our lives that they can thrive even in troubled times, others have strategic vision to sustain growth over the long term and some are nimble innovators, able to turn on a penny to adapt to new demands with innovative solutions.
Quality matters. Which is why when selecting investments, we believe that high quality, growing businesses will provide investors with a superior total return over the long-term.
Balance sheet – A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.
References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).
Janus Henderson, Knowledge Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc
Please read the following important information regarding funds related to this article.
- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
- The Company may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe - an adverse event impacting only a small number of holdings can create significant volatility or losses for the Company.
- Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
- This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
- Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.