Quarterly fund manager comment

31/12/2018

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Macro backdrop

Global stock markets corrected sharply in the fourth quarter with the MSCI World Index falling 11.2% in sterling terms to finish the year down 2.5%. Markets fell due to increasing concerns about the outlook for the global economy against a backdrop of rising US interest rates, trade war protectionism and difficult Brexit negotiations. The market declines coincided with a style rotation, with the MSCI World Value Index outperforming the MSCI World Growth Index by more than 4% during the quarter. The outperforming sectors were utilities, real estate, consumer staples, communication services and healthcare. The underperforming sectors were finance, materials, consumer discretionary, industrials, information technology and energy.

Fund performance and activity

Over the period the fund returned -13.1% in sterling terms, underperforming the MSCI World Index by 1.8%. Sector positioning was an important factor in the fund’s performance this quarter. While performance benefited from the fund’s underweight position towards the energy sector, this was more than offset by the overweight stance towards stocks in the information technology and industrial sectors. From a stock perspective companies exposed to global trade and tariff concerns detracted the most from performance, in addition to which several of our Japanese-listed investments underperformed. Contributing to performance were Getlink (Sustainable Transport), the manager and operator of the Channel Tunnel between Britain and France, Tesla (Sustainable Transport), the manufacturer of electric vehicles, lithium-ion batteries and solar power systems, and Gildan Activewear (Quality of Life), the North American manufacturer of t-shirts and basic apparel, renowned for its high social and environmental standards. Detracting from performance were DS Smith (Environmental Services), a leading manufacturer and recycler of corrugated packaging products, Evoqua Water Technologies (Water Management), a water technology company with a sole focus on water treatment, and Shimadzu (Safety), a Japanese manufacturer of analytical and measuring instruments which has been developing new blood tests for early screening of Alzheimer’s and cancer. Fund turnover was 5.7% in the fourth quarter and 26.9% for the full year. This is consistent with our long-term average of 20%-30%. During the quarter, we initiated new positions in Costa Group, Knorr Bremse, Intuit and Teladoc. Positions in Henry Schein, Kone, Leopalace21 and Mednax were divested.

Outlook/strategy

Our outlook has not altered from the comments we made in our last quarterly letter. 2018 has been a difficult year for equity markets with rising interest rates, US China trade tensions, signs of slowing economic growth, Brexit and political discord in Europe all weighing on investor sentiment. While we expect many of these uncertainties will continue into 2019, we also see many reasons to be positive. Current signs are pointing to only a modest slowdown in global economic growth, not a recession, and equity market valuations have improved. Despite recent rises, by historical standards interest rates remain at low absolute levels, and China is starting to enact economic stimulus policies. Meanwhile, technological change and innovation-driven growth are not going to slow down in our view. When we look at the fund we see some parallels with 2016 when we noted how many of our stocks had good growth prospects and were trading on attractive valuations. The long-term trends we analyse have not changed. Sustainability issues will continue to grow in importance, with active managers making a positive impact by consciously allocating capital towards companies that are contributing to a more sustainable planet, and away from those doing harm. The ‘Great Acceleration’ of the past few decades has led to a phenomenal increase in the demand for energy, land and water and now the concurrent climate change and environmental destruction is too obvious to ignore. To quote the Chief Executive of the World Wildlife Fund, “we are the first generation to know we are destroying our planet and the last one that can do anything about it”. When we think about sustainability we see a world of opportunity. We are seeing rapid increases in renewable energy, many more electric cars, and billions more connected devices with semi-conductors and microchips capturing and generating vast amounts of data. All of this will be stored in the cloud, requiring memory, and then analysed and made useful by software in order to create efficiencies, increase productivity and generate value. As well as holding many leading companies related to these areas, the fund also has positions in consumer companies leading the way in the circular economy; and to companies in health and life insurance, healthcare services, water technology, electrical safety, architectural design, education and entertainment. We also believe that oil prices will remain under long term pressure – in fact, a high oil price is self-defeating since it only serves to accelerate innovation and substitution. Mean reversionary events are inevitable over shorter time periods and when they happen, it is important to remind ourselves of the difference between value and valuation. Many factors can cause fluctuations in near-term valuations, including interest rates. Over the long-term however, we believe that growth will always generate the most value for investors. To our mind, creating long-term investment returns is, by its very nature, investing in sustainability.


Glossary of financial terms

Past performance is not a guide to future performance. 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.

Any stock examples are for illustrative purposes only and are not indicative of the historical or future performance of the strategy or the chances of success of any particular strategy. Janus Henderson Investors, one of its affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to sectors and stocks do not constitute or form part of any offer or solicitation to issue, sell, subscribe, or purchase them.

These are the fund manager’s views at the time of writing and should not be construed as investment advice.

Source: Janus Henderson Investors. Based on published NAV, net of fees, costs and other charges, but does not include initial charge if applicable.

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Important information

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

Janus Henderson Global Sustainable Equity Fund

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. 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.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

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.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund follows a sustainable investment approach, which may cause it to be overweight and/or underweight in certain sectors and thus perform differently than funds that have a similar objective but which do not integrate sustainable investment criteria when selecting securities.

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