Fund manager commentary – Henderson EuroTrust

03/05/2019

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April was yet another positive month for European equities (fourth in a row). With European political leaders voting to grant an extension to the implementation of Article 50, there was some welcome respite from politically-dominated news flow. In this environment, cyclical equities rallied strongly (led by Banks, Capital Goods and Technology), whilst some more defensive sectors (Healthcare in particular) were left behind.


During April, we sold our positions in Novartis, the Swiss pharmaceutical company and Alcon, the eye care business that spun off from Novartis at the start of April. Starting on Alcon, we see this business as exposed to attractive demographic trends, namely the growing incidence and diagnosis of eye conditions and the growth of the middle class spending power in underpenetrated emerging markets. We also see it as a company capable of some margin catch up versus peers; there is an easy argument to be made that the business has been starved of capital and focus under Novartis ownership and that independence will drive an improvement in performance. However, there is a price for everything and the implied valuation of Alcon after the spin looked materially too high to us and we sold the position immediately. Moving onto Novartis, again, we see this company as being well placed and well managed. However, we are becoming increasingly sensitive to valuation within the pharma sector given the strong performance over the past twelve months and given the increased attention that US drug pricing is likely to garner in the run up to the US Presidential elections in 2020. We have retained positions in Roche and Novo Nordisk, pharma companies in which we have greater conviction levels. We initiated no new positions during the month.


The best performing positions during April included SAP, Amundi and RELX. The worst performing positions included Novo Nordisk, Roche and Orange.


SAP announced in-line quarterly numbers during the month, but alongside this update, they revealed long term margin targets that implied an improvement in long term profitability far ahead of market expectations. This was accompanied with an announcement by the activist investor, Elliott, saying that they had taken a stake in the company and supported the long term margin targets. The shares reacted very positively. Amundi announced solid quarterly results which highlighted an improvement in net flows into medium and long term assets alongside industry-leading cost control. Finally, RELX has bounced back from a weak period for the shares which reflected an uptick in negative news flow concerning contract renegotiations in their journals business.


Novo Nordisk and Roche have both been impacted by negative sentiment surrounding potential changes to the US healthcare system and by the re-emergence of concerns around US drug pricing. As mentioned above, we see a risk that these topics continue to act as a drag on sector performance. Incidentally, both Roche and Novo Nordisk have announced strong quarterly results so far this year. Orange has also been a disappointing performer, held back by tough trading conditions in France and by concerns around the need for greater levels of capital expenditure. 


We have had a decent start to the year and will continue to try to identify the best opportunities for investment in a disciplined and systematic way.

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.

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  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
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