February Fund Manager Commentary: Henderson EuroTrust



​For some time we have felt that world markets needed to curb their enthusiasm slightly. We used the expression “as good as it gets” as perhaps being an apt warning. But weight of money has driven everything higher, - until “weight of money” (aka ETFs perhaps) decided to swing the other way.

We believe that the trigger for this was fears of inflation returning with a vengeance and central banks “removing the punch bowl”. Now, while some of this may well be the case (the USA Federal Reserve has already started to raise interest rates), the situation in Europe remains a clear time lag of about 18 to 24 months. However, European markets have in the past sometimes worked on the basis that where the USA goes, we follow. Again this may be true – but we think that we have not yet reflected the improved economic, political and earnings situation. Accepted maybe that politics in Europe remains messy, but frankly I would prefer European politics than either the UK’s utter mess or the USA’s current predicament.
For Henderson EuroTrust we have been using this period of sell off to utilise the gearing facility, and by the end of February we were about 5% geared. We have more to spend (up to about 8% gearing) but will do so prudently. We believe it is important to remember that Europe is just entering the big dividend paying season (generally March to end June) and this has been a supportive period in recent years. I do not think the German 10-year Bund yield will rise much over 0.8% (it has been over 0.75% recently but then drifted back to just over 0.6%) and therefore feel that the Bund move reflects what may be the economic reality in a year’s time. However, I feel that we will also be remembering by then that we are actually still in a world of low growth and low inflation, and this partly explains the political anger vented in quite a few countries. But in a low growth world we feel we are better served by holding companies that produce consistent higher returns.
We have sold right out of newly listed Austrian bank Bawag on concerns that the environment is getting tougher for their relatively aggressive model, and also have sold out of Heineken. The result is total holdings of 47 – the lowest and therefore more concentrated for some time – while we have added extensively to our biggest positions, such as Geberit, Amundi, Deutsche Post, SGS and Deutsche Boerse.
We think that markets may continue to be volatile in the short-term, and we are likely to use weakness to continue to build positions in what we believe to be excellent companies. In our view, European equity markets look to be at attractive valuation levels relative to history, their growth in earnings and to the USA. Patience may be needed but the companies themselves we think are generally faring much better than has been the case in recent years and Merger and Acquisition activity is also picking up.  
Glossary –
Weight of Money - refers to the volume of money either coming into or leaving equity markets
ETF’s – (Exchange Traded Funds) are a security that tracks an index. ETF’s trade like an equity on a stock exchange and experience price changes as the underlying assets move up and down in price.
Gearing – How much money the Trust borrows for investment purposes.
Bund – A German government bond.
Volatility – The rate and extent at which the price of a portfolio, security or index moves up and down.

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 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.

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Henderson EuroTrust plc

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.

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.

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.

Issued in the UK 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.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust 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 trust.
  • The trust 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 trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • 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.
  • Where the trust 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.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.

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