Henderson European Focus Trust Fund Manager Commentary – August 2022

Macro backdrop​

August saw a sharp reversal of the gains seen in early summer with European equities falling 5.2%.¹ This was fuel led by heightened uncertainty a s investors continued to wrestle with central bank narratives, geopolitics and economic data. The beginning of August saw the partial unwind of the 'peak rates' and 'Fed Pivot' euphoria that dominated market sentiment in July. This accelerated throughout the month and the debate was put to bed due to a hawkish US Federal Reserve (Fed) Jackson Hole conference. Following this, further public statements from Fed officials and a robust August jobs report cemented the view that the Fed is committed to getting inflation under control, hiking rates even if it means plunging the US economy into recession. Thus, we have a "perfect storm" and Europe is in its eye . After six months of war in Ukraine, there was still no sign of a ceasefire and recession looks nailed on as the energy crisis deepens. Gas flows from Russia to Europe remain a weapon of choice: after various 'maintenance' shutdowns seen at Nord Stream 1 in June and July, there came confirmation from Gazprom that Nord Stream 1 would remain indefinitely closed due to an 'oil leak'. Natural gas prices duly surged. At the time of writing, European equities are trying to price what a winter of gas rationing and further elevated gas prices means for the various industries and households that a relocated on the continent. The rest of the year will be volatile but we believe that opportunities will present themselves to add to existing positions or enter new names where the valuation and fundamentals disconnect.

Trust performance and activity

The only significant activity during the month were the sales of Signify (trimming cyclicality) and Roche.