Quarterly fund manager comment

31/12/2017

Download

Macro backdrop

The fourth quarter continued the strong run we had seen so far in 2017 with the MSCI World Index finishing at all-time highs and delivering positive gains in all but one of the last 12 months. Markets were supported by broad based improvements in economic growth and the prospect of US tax reform, and were undeterred by lack of progress on Brexit talks or high geopolitical tensions.

Fund performance and activity

Over the period the fund gained 6.1% in sterling terms, outperforming the MSCI World benchmark by 1.4%. The fund continued to benefit from stock selection and being overweight the information technology sector. Stock selection within health care also positively contributed, partly offset by stock selection within the consumer staples and consumer discretionary sectors. Contributors to performance included Adobe (Knowledge and Technology), the developer of software for creative professionals and digital media. Its shares rose as the company reported strong results and held a capital markets day where they issued longer term guidance above market expectations. Adobe inventions are helping to drive the creation of ideas and exchange of information - presenting new ways of solving social and environmental problems. Education is one of Adobe’s largest end markets. In addition, the shift to digital media enables customers to reduce waste and save natural resources. IPG Photonics (Efficiency), a leading global manufacturer of high-performance lasers, continued its strong run after reporting earnings ahead of market expectations and considerably above its management’s prior guidance. The strong growth was driven by materials processing applications such as cutting and welding, in addition to strong demand growth from China. The company also continues to take market share as a result of its technological leadership and lower cost base. Fibre lasers are up to 20 times more energy efficient than traditional industrial lasers and their use leads to material energy savings and a reduction in carbon emissions. They also have low running costs. Fibre lasers have a large number of applications and they are transforming industrial manufacturing processes, medical technology, and consumer entertainment.Detracting from performance: Henry Schein (Health), the world’s largest provider of healthcare products and services to medical, dental and veterinary practitioners continued to underperform in Q4. The shares have been derated over fears of increasing competition in low end dental consumables from internet providers, including Amazon. Currently this is only impacting a small part of Henry Schein’s business, however we are monitoring the situation closely. Henry Schein helps its customers succeed by offering the products and services integral to helping individual practitioners not only improve the health and wellbeing of their patients but also collectively address some of the world’s most pressing health issues. Unicredit (Sustainable Property & Finance), a leading European commercial bank with a focus on financial services to businesses and home owners, declined as investors took profits ahead of the upcoming Italian elections. Unicredit has numerous initiatives to support lending to business start-ups, research & development activities, public infrastructure and renewable energy generation. The bank also incorporates carbon risk into lending risk management and has mapped its activities against the UN SDGs. Portfolio activity and positioning:Portfolio turnover was 5.7% over the quarter and 26.9% for the full year. The fund remains overweight the information technology and industrial sectors and underweight the energy, consumer staple and financial sectors. The regional weighting remains in line with the MSCI World benchmark.During the quarter, new positions were initiated in Kone, Evoqua Water Technologies and Autodesk. Positions in Johnson Controls, Willis Towers Watson and Plant Health Care were divested. Kone (Efficiency) is a global leader in the elevator and escalator industry exposed to the mega trends of population growth, aging populations and urbanisation provides solutions to improve the flow of urban life making people’s journeys safe, convenient and reliable in taller, smarter buildings. Today cities account for c.2% of the world’s land mass but 75% of global energy consumption and 80% of manmade carbon emissions and therefore reducing the environmental impact of urban areas is essential for a sustainable future. Kone is a leader and pioneer in developing eco-efficient solutions in the elevator and escalator industry with some of their current elevators being up to 90% more energy efficient than models from the 1990’s. Evoqua Water Technologies (Water Management) is a water technology company with a sole focus on water treatment. Its core technologies are focused on purification; removing impurities from water (rather than neutralizing them through the addition of chemicals). It serves municipal and industrial customers and its solutions span the entire water life cycle from extraction and purification to waste treatment and reuse. Evoqua’s treatment systems and services enable customers to achieve lower costs from more efficient use of water as well as ensuring their ability to meet regulatory compliance requirements and environmental sustainability objectives. Autodesk (Knowledge & Technology) is the global leader in design software used by architects and engineers worldwide and a provider of software to product designers. Autodesk’s solutions aim to empower customers to optimise the environmental and social impacts of their designs; whether it is building designs that dramatically reduce energy needs, resilient and environmentally sustainable infrastructure or new approaches to product development and manufacturing that deliver more customized goods that are created locally with less materials waste.

Outlook/strategy

2017 has been another year where growth has outperformed value, and large cap stocks have outperformed small caps. We believe this is a reflection of the disruption occurring in multiple sectors, where a combination of technological innovation and large, well-capitalised new entrants is challenging the status quo in previously stable industries. Our investment framework leads us to invest in companies which are transforming the world for the better and we are excited by the increasing alignment between sustainability and key investment trends. Companies (and investors) are realising sustainability makes good business sense. We are finding investment opportunities in a broad range of sectors and themes including transportation, smart cities, sustainable infrastructure, cloud computing, internet of things, health care, insurance & risk management, electrical efficiency, water, recycling and manufacturing. We focus on investing in companies providing solutions to the global environmental and social mega trends of aging and growing populations, resource constraints and climate change. We also avoid companies involved in activities contrary to the development of a sustainable economy. We are confident this approach will increase our chances of being on the right side of disruptive investment trends, and it should enable us to deliver attractive, long term investment performance. While the market’s strong performance since March 2009 has resulted in multiples above historic averages, we believe the companies we hold are attractively valued given the confidence we have in their growth. We strive to build a diversified portfolio of the best global sustainability ideas with higher growth, returns and stronger balance sheets than the MSCI World Index, for a slight valuation premium. We believe this sets the portfolio up well for whatever 2018 and beyond may bring.

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.

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

For promotional purposes.


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 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 incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. 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 Henderson Global 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.
  • 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.
  • 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.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • 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.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Share

Discuss

 
 
[##ImageTip_CAPTCHA]
 

Important message

Fund name changes

Please note that from the 15 December 2017 funds previously named Janus or Henderson have been renamed Janus Henderson. This change aligns our product names with our name, Janus Henderson Investors, following the merger of Janus Capital and Henderson Global Investors in May 2017.

This name change does not impact on the management of the underlying funds and investors and advisers are not required to take any action. This does not affect Janus Henderson’s range of investment trusts.