For individual investors in the UK

Henderson EuroTrust Fund Manager Commentary – June 2022

Man at Laptop Wealth Management
Jamie Ross, CFA

Jamie Ross, CFA

Portfolio Manager


11 Jul 2022
5 minute read

Jamie Ross, Portfolio Manager of Henderson EuroTrust, delivers an update on the Trust highlighting the key drivers of performance over the month of June.

Macro backdrop

The macroeconomic narrative started to change in June; the month started with lots of discussion of rising bond yields and inflationary pressure and then mid-month bond yields seemed to reach a near-term peak and have declined since. This stalling in bond yield progression brought some relief for growth/quality equities and there are a few commentators now suggesting that we may have reached the peak for interest rate expectations this cycle. The other dynamic this month was further evidence of the weakening environment for consumption. We saw a number of warnings from businesses exposed to consumer discretionary spending, especially in the US. Market valuations now seem to suggest that a recession is likely and sentiment (investor, consumer and business) has taken a big shift down.

Trust performance and activity

After the extreme value outperformance that we witnessed in May, June was better for growth stocks and Eurotrust outperformed the sharp index decline. Given the increasingly challenging macro environment, it is unsurprising to report that sectors exposed to discretionary consumer spending such as autos and retail, and traditionally cyclical sectors such as banks, energy and materials, suffered. We also saw weak performance from information technology, led by a sharp sell-off in the cyclical semiconductor sub-sector.

Better performing sectors included health care, consumer services and consumer staples. This kind of environment suited our holdings since we have an overweight position to quality, growth stocks and an underweight position to the value style. We also have an underweight position to information technology stocks.

June was a quiet month for stock-specific news flow (there were no results announcements for example) and our winners and losers have largely followed the pattern of the sectors described above. Our best performing positions were Novo Nordisk, KPN and Munich Re, and our worst performing positions were Arkema, Bawag and CNHI.

Trading activity was limited in June. We made some small rebalancing trades by reducing Stellantis and CNHI while adding to positions in Sartorius and Safran. We used market weakness towards the end of the month to add to some of our core positions, which brought up leverage by 1-2%, and we initiated one new position in BE Semiconductor (Besi). Besi is a high quality, highly cyclical semiconductor equipment company which historically has seen 60% gross profit margins and a high return on invested capital (ROIC). Its shares had fallen by over 50% since their peak in January due to concerns over the cycle.¹ We saw this as a solid opportunity to start to increase our semiconductor exposure via one of the best companies in the sector (the other being ASML, which we already own). People often confuse cyclicality with 'value' or 'low-quality' and Besi is a cyclical but well-managed business with well-entrenched oligopolistic/monopolistic market positions in a structural growth sector.

Outlook/strategy

We will continue to retain balance in our exposures by considering two types of business for investment; those where we see the potential for high and sustainable returns that we thin k are undervalued by the market and those companies where we can see a material improvement in medium-term business prospects.

¹Source: Bloomberg asat 30 June2022

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The Company may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe and an adverse event impacting only a small number of holdings can create significant volatility or losses for the Company.
  • Where the Company invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • This Company is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incured by the Company can be greater than those of a Company that does not use gearing.