Jamie Ross, Fund Manager of Henderson EuroTrust, explains how the trust has outperformed the market over the year to date and outlines his strategy behind this impressive run. Jamie also highlights two new and interesting additions to the Trust’s portfolio along with additional portfolio activity.


Q: Hello and welcome to the latest video update for the Henderson EuroTrust. I'm joined by the Trust’s fund manager Jamie Ross. Jamie thanks for coming in today.

So Jamie we're halfway through the year, so what can you tell us about the Trust’s performance over the year to date?

A: So European equity markets have been very strong. In fact global markets have been very strong and we have outperformed the strong market, so very pleased with how we're doing so far. Also very aware we're 5, 6 months in, so let's see how the rest the year goes but feeling very positive about things. When I think about the drivers of that performance year to date, pleasingly it's been mostly stock specific. So style has had some impact, so we've got a quality bias and that's been a good area to be in but really the biggest thing has been the individual positions that we own. So to name a few: DSM, one of our bigger positions has done really well for us; SAP (German software business) has also done very well. And finally Amundi, a French asset manager, has bounced back nicely after a tough Q4.

Q: Now looking at the portfolio there's been some activity over the last few months. What can you tell us about any of the new additions and some of the positions that have been sold?

A: Actually there hasn't been that much activity, so we haven't traded a lot, which tends to be our way, obviously we tend to be quite long-term focused. So what have we done? There's one position worth mentioning that's come out of the portfolio and that is Novartis. So for a long time we've had quite a lot of pharma exposure. We like these businesses; you know these are generally high return assets, generally quite well managed and fairly predictable businesses. But we have a slight concern that over the next two to three years, let's say, especially in the run up to presidential elections in the US we worry that drug pricing especially in the US market will come under increased scrutiny even more than it has done over the last few years. Partly for that reason, we felt that we wanted to reduce some of our pharma exposure. But also when we looked at the pharma companies we own, so Novartis, Roche and Novo Nordisk, we felt that Novartis was the one that we felt the least conviction in and that was the highest rated for the growth on offer. So that went out of the portfolio and reduced our pharma weighting as a result.

And then there's been two new additions in the recent history (in the last few months). Two very, very different businesses. So the first one is an Austrian bank called Bawag, this is a fairly small business, so 4 billion-ish market cap. It is a high quality bank, it sounds almost like an oxymoron saying that but it's a good business, it's generating a mid-teens return on tangible equity. So it's a business that is creating value in its market and Austria is a very robust home market showing good economic characteristics. The things that really appeal to us about this business in addition to our high return nature are the fact that it has excess capital. So we're not concerned about the level of capital at this bank, in fact it's the opposite. And if anything, we're going to see capital coming back to us. At the moment they're looking for ECB approval to return around €400 million which on a €4 billion market cap is obviously pretty meaningful and we think they can continue to return capital as they grow. So that's the first one that we bought.

And then as I said a very different business but Cellnex is another new addition to the Trust. Cellnex is a Spanish tower owner and operator, telco tower. So it sounds like a pretty mundane infrastructure type of business and it is to be honest. However, we see a very good avenue for growth in this business, essentially the telco operators no longer want – and no longer should – own these telco towers. And so they're starting to shed these assets and Cellnex is the best buyer for these businesses and is able to pay the right price and is a very high return activity for it when it buys these assets. So some very good growth trajectory in that business over the long term and one that we've established a position in.

Q: Looking forward, there's been a lot of speculation about the global economy and in particular the possibility of a recession on the horizon, do you have a view on these macro trends?

A: You know our strategy, you know we're not going to focus too much on macro and we're not going to debate too much about politics. But of course I have an interest, I have a view and it might well be wrong but I do have a view. As I see it at the moment and mostly informed by the companies we talk to on a regular basis, there are some very clear signs of cyclical weakness in pockets, not across the board, but in certain pockets.

To name a couple; the autos market we've had a couple of warnings in the last week and another one today, Nokian Renkaat this morning had a minor profit warning. So that's a tough market at the moment, we know that. And then the semiconductor space is another obvious area of weakness where we've seen a very big US company overnight have a profit warning; that's had a knock on impact on the space today. But just more generally, that's going through a very tough time at the moment. So we can see some weakness and that speaks to an economy that is struggling in parts.

However, on the other side of things, we've also got central banks that are being hugely accommodative on a global basis. Every time we get some bad economic news we get rate increases push to the right again. So we've got super low policy, super low rates and that is gently supportive of not only of the economies themselves but also of asset prices. We invest in equities, that's a welcome thing for us.

So how do we feel about you know the world in general? We feel that kind of suits us reasonably well. We tend to have a bias as you know towards quality, we focus on return on capital, we focus on long term ownership with rates being nothing and staying nothing for apparently forever. That's not a bad place to be for owning these long duration, high quality businesses. So we're measured but we feel pretty good about the world at the moment.