April Fund Manager Commentary: Henderson EuroTrust

02/05/2018

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​April has been a better month for European markets. While economic data for the European area has continued to slow somewhat, the reaction to this has been mixed: should the market be concerned that growth is slowing and therefore earnings might start to decline, or should the market be relieved as this means that the ECB will not tighten its monetary policy too much too early? Europe, once again, is sandwiched in the middle of this debate by the UK on one side (has started to tighten monetary policy) and the USA which has been tightening monetary policy since December 2015 (albeit with a long pause after the first increase in rates).

While this debate is relevant for the implications of the global economic cycle on Europe’s companies which are for the most inextricably linked to that cycle, it sometimes diverts attention away from what the companies are achieving.
These achievements have tended to come across in results for the first calendar quarter, which for the most part have confirmed modest expectations for further growth in earnings in 2018. What has been obvious however is that the weakness of the US $ has been a headwind for many companies which should ease as the $ rallied towards the end of April, and also as the year on year comparison was at its worst in Q1.
 
I am continuing for the time being to work along the lines of a slow rate of growth in the European (ex UK) area, and a reasonably benign global growth backdrop – Goldilocks if you like, where growth is neither too hot nor too cold. Having said that, I am also a subscriber to the view that the investment climate is becoming more complex as the huge monetary stimulus (Quantitative Easing) of the last few years is gradually withdrawn.
 
European markets have entered the main dividend paying season and Henderson Eurotrust has started receiving the dividends as expected.

We have not made many changes to the portfolio over the last month, but have begun to utilise a larger part of our (increased) £25m borrowing facility.
 
European equity markets continue to be underpinned by reasonable earnings growth, lower valuation levels than many other areas and a stable economic outlook. There will continue to be plenty of what in a theatre is sometimes referred to as “noises off”, but underlying company progress is good. We believe this is a time to patiently earn that dividend income and not to get too distracted by clowns.
 
Glossary –
Quantitative Easing – a measure whereby a central bank creates large sums of money to purchase government bonds or other securities, in order to stimulate the economy.
 
Capital at risk, not advice.

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 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.

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.
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  • 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.
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  • 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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