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The European Smaller Companies Trust PLC: Full-Year Results 2024

HET

Henderson European Trust plc

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ECB interest rate cut ushers in a new era for European stock pickers

Henderson European Trust co-manager Jamie Ross discusses the European Central Bank's decision to lower interest rates for the second time in 2024.

Today (at the time of filming on 12 September 2024), we have had a 25-basis point (bp) rate cut from the ECB (European Central Bank). Inevitably now the debate will move on to what happens at the next US Federal Reserve meeting in September, and an obsession about whether it is going to be 25 bps or 50.

We would like to take a step back here and have a think about the bigger picture. For us, we will look over the last 20 years, and we have seen three distinct interest rate periods. So firstly from 2005 to mid-2008 we saw a period of rates up. Then we saw this very prolonged period of ‘rates down, zero interest rate policy (ZIRP)’ environment from mid-2008 to 2022. Then we had the return of inflation, and people assuming that rates would go up, and then rates going up. That’s really been the three distinct periods.

Now, we are entering the fourth. Rates have peaked in the US and Europe. And although there are mixed economic signals, recent jobs weakness in the US for example, inflation is coming down, with services inflation proving a little bit sticky. But it is now right to price in significant cuts in Europe and the US. So we need to think about what would perform well in this environment.

Each of those periods I have mentioned has had very distinct differences, in the sectors, the stocks and the style leadership, in those market environments. The most recent market environment of increasing rates and the return of inflation has seen – as you would expect – the outperformance of banks, retail and, to a certain extent, technology (not quite so expected in that environment). And the areas that have underperformed have been utilities, real estate and telcos (telecommunications). It is really that latter set of sectors that we are looking for opportunities.

And over the last few months on the (European equities) desk we have found a number of esoteric stock-specific investments within those sectors. In particular, we have looked at undervalued real estate businesses, with a skew to Germany, and to post-Brexit UK. We have seen investments in more defensive infrastructure, like telcos businesses, and electricity grids has been another area of focus, where growth, returns and valuation, to us, look attractive. We need to make sure with our actions today that we do well in the next environment that we face now.

 

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

Past performance does not predict future returns.

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Basis point: 1 basis point equals 0.01%.

Inflation: The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures.

Monetary policy: The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. Monetary policy tools include setting interest rates and controlling the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.

 

Disclaimer

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), Tabula Investment Management Limited (reg. no. 11286661 at 6th Floor, 55 Strand London WC2N 5LR and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 78, Avenue de la Liberté, L-1930 Luxembourg, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).
Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc

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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.
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