Investment trusts can go toe-to-toe with private equity firms, says John Bennett, Fund Manager of Henderson European Focus Trust, owing to their unique access to “permanent capital”. John also explains why European equities might be poised to rally.
Q: What does the future hold for the Trust and markets more broadly?
A: I have never been comfortable talking about the coming months or even the coming year. I just think it's from the birds I mean anybody who thinks they've got a clue about stock market direction are kidding themselves and their audience, so let's not do that. That being said I think European equities are going up. I'll probably get that terribly wrong but I think they're going up and that's maybe a short term view. What excites me most and it's challenging yet exciting is when I come back to this true active thing.
I look at what's going on in private equity and I look at what's going on in public equity and public equity managers are being commodities; active managers are being commodities. Their fees are going down etc. Private equity, not only do they have juicy fees that only active public managers can only dream of, they have a time horizon. They have locked up money which open ended active managers in the public world don't have; big competitive disadvantage.
Closed end Henderson European Focus Trust and other investment trusts we do have permanent capital. This excites me and has helped inform how I'm responding to what I think is an existential crisis for active fund management and that is what are the weapons that private equity actually use, what do they have that we don't have? And I personal think it's only a time horizon, a longer time horizon but boy oh boy is a very strong competitive advantage. What I'm saying in my team and in my portfolio is what we are expressing is a much longer term time horizon in the things that we are doing allied with true active.
If you're going to worry about my investment trust underperforming a benchmark for three months, six months, nine months or 12 months please don't be in that investment trust or any of my funds because I want that competitive advantage of having a longer time horizon. That's when we can excel in my view and an investment trust does lend itself to that. That's the long term, that's how I'm thinking about my business and how we've reshaped how we run money.
Short term it's a mug's game, so I'm the mug. I think Europe is going up. I think European equities are going up I think they're on the verge of a breakout. I'm here to have egg all over my face because short term forecasting is mad. I think European equities are going up. I think that too many industrial names and we've just talked about is Germany in recession etc. And I said that's when you get opportunity the narrative, the macro narrative, the Brexit narrative, the European negative macro geopolitical narrative. And my view has led to depressed valuations not across the board but in large parts of the European equity market not least in quality industrial franchises not the banks which I continue to believe are an optical illusion of value but quality industrial European franchises are there for the taking in terms of their offering value. And if the stock market doesn't realise that value in terms of their share prices and their ratings watch dear old private equity, expensive dear old private equity, come in and lift European franchises off the stock market as is now happening in the UK market.