May Fund Manager Commentary: Henderson EuroTrust



​For a few months I have been bemoaning the fact that sentiment towards European Equity markets was so bad that it surely should get better. After all, economic recovery was ticking along – slowly and gently, and the ECB would very slowly be in a position where it might start to reduce the amount of Quantitative Easing (QE) further, and perhaps even consider raising interest rates later on in 2019. A year ago, after the French elections, we also thought that politics would ease back to be less relevant.

In May European economic news has continued to show growth is slowing (but still clearly positive), but politics has deteriorated sharply in Italy, and may also be getting worse in Spain. Rather than get lost trying to explain the intricacies of Italian Politics which are complex enough at the best of times, the result is renewed stress on the Euro. The premium investors demand to invest in Italian € denominated 10 Year Bonds has risen at times to over 3% from its more normal level in recent years of  about 1.5%. it remains to be seen how much of the radical spending plans by the new collation will actually be implemented and, importantly, what the impact of that will be on investors’ perception of Italian debt.

In Spain, it seems quite likely that there will be a change of government, but since all parties are broadly in agreement on the economic path that needs to be followed, markets have been more relaxed. Nevertheless this political noise across Europe is a clear distraction from a reasonable economic and earnings background.

In Henderson EuroTrust we have reduced the level of gearing, from about 8% at the beginning of the month to just over 2% gearing at the end of the month. We have been earning a significant amount of Dividend income over the last few months and gearing has helped with this. We have sold Axa and our only Italian position, Intesa Sao Paolo Savings shares, and have reduced other financials such as ING and Credit Agricole. We have a very low exposure to banks in the portfolio now. We have also taken some of the profit from recent very strong performers such as Hermes, Deutsche Boerse and DSM, but they both remain large positions.

It is June. Trump has followed through with import tariffs on steel and may follow with more tariffs in an attempt to “Make America Great again” by blocking everyone else. Politics has deteriorated worldwide, and markets seem to hang on every “tweet” by someone. Attention spans are short and stress is evident. Trading volumes are low in markets and as a result we may have big swings and we may have just very quiet days where not much happens. There is also unlikely to be much news in terms of results from companies until mid-July. There is plenty of reason to take a more cautious stance and we have done so. Performance of Henderson EuroTrust has been well ahead of the index in May and so far this calendar year, but European equities remain out of favour and hence discounts have widened. We can’t do much about sentiment, but we can continue to focus on good quality long term growth companies which can increase the return to us as shareholders.   
Gearing - A measure of a company’s leverage that shows how far its operations are funded by lenders versus shareholders. It is a measure of the debt level of a company. Within investment trusts it refers to how much money the trust borrows for investment purposes.

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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