Please ensure Javascript is enabled for purposes of website accessibility

Henderson High Income Trust Investor Meet Company Webinar

HEFT

Henderson European Focus Trust plc

Back to Insights

Henderson European Focus Trust – turning the spotlight on deep value

In the age of cheap money, European markets were often undervalued by global investors. But in a tougher economic environment where fundamentals matter it could be time to look to Europe’s global champions for real income and capital growth.

For several years, European markets have been seen as the poor relation of their US counterparts. Cheap money has buoyed the valuations of high-growth technology groups and young ‘disruptor’ businesses – a trend that has favoured US stock markets. Meanwhile, quality, cash-generative European companies have often been neglected and often severely undervalued.

But the tables are turning. In recent months, European markets have outperformed their US rivals and in an era of higher inflation and higher interest rates it may be time to look to the best European companies to deliver long-term growth.

Henderson European Focus Trust has always taken a long-term view of investment, looking for global champions whose shares are reasonably priced, and which therefore have the resilience to deliver long-term income and the potential for capital growth.

Europe’s economy is not without challenges. The war in Ukraine has created huge uncertainty, higher energy costs have further fuelled wider inflation which has been bearing down on consumers and investors. But there are significant strengths to the economy as a whole and, more importantly for investors, companies with immense potential and that offer exceptional value.

The European economy is rebounding

Eurozone economies are showing signs of sturdy growth. Just a few months ago, a European downturn was seen as almost inevitable, but recession appears to have been averted and forecasts for European economic growth in 2023 and 2024 are now being revised upwards. 1 Exports from the Eurozone are rising strongly and the re-opening of China’s economy earlier this year after its protracted Covid lockdowns, bode well for Europe’s trade outlook.

The pessimism of late 2022 meant many European businesses were priced for recession, but as that risk has waned and growth rebounds those valuations now look far too low, particularly in comparison with US markets.

Inevitably, the broadly positive outlook will not be felt by every company and sector, and inflation and higher borrowing costs will still be a headwind for some businesses. But many European companies are well-placed for these economic conditions and, because they have been undervalued in recent years, present a significant investment opportunity.

There is no guarantee that past trends will continue, or forecasts will be realised.

1 Spring 2023 Economic Forecast: an improved outlook amid persistent challenges (europa.eu)

The global trends driving Europe’s champions

The key to identifying these opportunities is an understanding of the mega themes that will drive secular growth in Europe in the years ahead: automation, digitalisation, electrification and onshoring. These are global trends that will bring greater efficiency to companies, shorten supply chains, and expand manufacturing in Europe.

Examples of the global champions include Belgian brewing giant AB Inbev, which has the scale and margins needed to weather inflation and regain market share from smaller rivals. Engineering groups Siemens and Schneider Electric are global groups who stand to benefit from growth in automation and digitalisation and the onshoring of supply chains.

Meanwhile, Europe’s aerospace sector is another opportunity to invest in global champions such as Airbus, while the onshoring of electronics supply chains – brining supply back to Europe from overseas – is a powerful tailwind for semiconductor sector groups such as ASM International, STMicroelectronics and BE Semiconductor.

These are the types of companies that were often undervalued in the era of cheap money, but the spotlight is shifting back, and the deep value and growth potential of these companies is becoming increasingly clear.

Time for a European Focus?

European markets now look cheap in comparison with US markets. Digging deeper, there are pockets of exceptional value to be found – quality, cash-generative European companies with long-term growth potential.

These are the types of businesses at the heart of Henderson European Focus Trust’s investment strategy. In an age of higher interest rates and inflation and a return to fundamental value as the bedrock on investment, a European focus could be exactly what investors need for long-term income and capital growth.

Disclaimers:

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Not for onward distribution. 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. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Janus Henderson, Knowledge Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc

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 that is diversified across more countries.
  • Some of the investments in this portfolio are in smaller company shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance 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 (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
  • All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.