Recessions often bring with them stock market opportunities, says John Bennett, Fund Manager of Henderson European Focus Trust. John also explains why he’d like to lower the minimum number of stocks the Trust can hold further to 35.


Q: The top ten (largest positions) looks a bit different and more concentrated, can you explain this?

A: I mean the Investment Trust continues to have a floor on the number of stocks. So at the moment we can't go below 45 stocks. It'll be put to shareholders at the AGM in January to lower that floor and in conversation with investors throughout the summer, throughout 2019 I've been preparing investors for that question if you like and that question will be answered in January; do you approve of the floor being lowered? So it may well be that we'll end up tracking between 35 and 45 stocks instead of 45 minimum.

That has meant that we've got more concentrated as we moved towards that floor at 45 and you do see that in the top 10 for example, I mean our biggest holding LafargeHolcim over 8% of the NAV so it's proper active and this point is really important. It's true active if you want an index you don't buy Henderson European Focus Investment Trust; you don't buy any of my funds if you want the European index. One example, you don't get any banks in what we do. Bit painful at the moment incidentally if you look at it relative to the index because the banks are going up quite a bit at the moment, I think that's a short term phenomenon.

So it's a very deliberate business decision as well as a portfolio decision to give investors something that isn't Europe as defined by a benchmark index. An investor can buy a benchmark index anywhere in the world for about a basis point, in other words you don't need an active manager to do that you buy passive. We are giving true active, we're offering true active.

Q: What are your thoughts on further QE (Quantitative easing) in Europe? Also what do you think is the possibility of a recession? And your opinions on Europe’s recent economic data?

A: It's interesting if we're going to talk about the European economy, the German economy, the Italian economy whatever part of Europe and then ECB and Europe is not alone in its central bank shenanigans, because one is reality i.e. the fundamentals of economies and to me the other's virtual reality. This virtual world, this some might think rather crazy world but certainly an experimental world of central bank activity. And let's come back to that.

Hallelujah! We've got a recession in Germany. Maybe we do maybe we don't but let's look at what you tend to get in recessions; stock market bargains. I've always maintained you do not get stock market bargains when the water is warm, it's so easy it's lovely, the outlook is sunny uplands, and I'm mixing all sorts of visual metaphors there I imagine. But that's not usually the time when those remaining value conscious investors such as myself find opportunity. You do find opportunity when the narrative is negative; oh here comes recession.

Germany is at least flirting with recession who cares except headline writers? And is it a surprise? My goodness me the German economy had a wonderful decade and more. Courtesy of Schroeder's supply side reforms which then met Asian Chinese demand, what a party German capital goods exporters had. Now you get a bit of a hangover from said party. Oh Italy's in recession, really? Throughout my career it dips in and out of recession mainly because they want reform. I actually do think much of it is noise. The good news about recessions anywhere in the world is they tend to offer you stock market opportunity.

Then you have that virtual reality world of central bank actions. I question why the latest QE by the outgoing Mario Draghi why that's going to have any different effect from the previous QEs. In other words, you're getting a spike in bond yields at the moment but actually QE over the period has, in my view, helped flatten and invert bond yield curves and in other words it's flattened, or depressed the long end of the bond yield curve. So it's a bit sort of if you keep trying the same thing again and again and again and expecting a different outcome it tends to equal the definition of insanity. That's kind of how I view it.