July was a difficult month for European equities, and August has continued that trend. No matter what the news has been, there has been a way to interpret it negatively in Europe, to the extent that the divergence of performance between the US Equity market and Europe has become extreme. An argument could be made that Europe is more in touch with the reality of the prospect for slightly slower growth than the USA, which may mean that any sell off might be led by the USA. However, any sell off in the US market would prevent European markets from making gains in absolute terms.
Henderson Eurotrust had a poor July and lagged the index, but still managed to outperform over the fund’s Financial Year to end July 2018. Given the delay with which I am writing this report (for which apologies), I can update that most of that under-performance has been recovered by mid-August, as a number of our large positions (notably Deutsche Post, Amundi and Novo) have all rallied strongly recently. It is a fact of modern markets that some moves seem both exaggerated and short lived, begging the question as to who is acting in such a short term manner.
With Q2 results largely completed, the earnings picture for European companies looks largely intact for 2018, although evidence is mounting that there will be slower growth ahead. There may also be repercussions from the crisis in confidence in Turkey and fears of that spreading to other EM, and the tragic collapse of the viaduct in Italy will almost certainly fuel political backlash against legacy modes of conduct in industry.
We continue to hold a small (2.6%) cash position.