Remaining resolute amid market uncertainty

Jamie Ross, Portfolio Manager of Henderson EuroTrust, provides an update on the Trust, highlighting how he is navigating this volatile market environment, areas where he is finding opportunities, and how companies are dealing with higher input costs. Jamie also touches on what the war in Ukraine might mean for the energy transition.

Key Takeaways:

• We are using this difficult environment for quality-growth stocks as an opportunity to move further toward this style bias. Simply put, we are finding opportunities to buy what we see as high-quality, long-term investments at reasonable valuations.
• Across the board, companies are experiencing margin pressure, stemming from higher labour, freight, and energy costs. However, quality companies with strong pricing power have been able to pass on these rising costs.
• Growth/quality stocks have struggled because the combination of high interest rates and inflation impacts the multiples which investors are willing to pay for these stocks. As the discount rate goes up, the valuations of these stocks go down.

Glossary

Growth stock – A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings, they accrue to accelerate growth in the short term.

Multiple – A multiple measures some aspect of a company’s financial well-being, determined by dividing one metric by another metric. Metrics are quantitative tools that measure a company’s performance. The metric in the numerator is typically larger than the one in the denominator. Investors use multiples to quantify a company’s growth, productivity, and efficiency.

Valuation metrics – Metrics used to gauge a company’s performance, financial health, and expectations for future earnings eg, price to earnings (P/E) ratio and return on equity (ROE)