Fund manager commentary – Henderson EuroTrust

07/06/2019

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After a strong start to the year, European equity markets fell in May giving back around a third of their year-to-date gains. Macro-political news flow remained focused on the ongoing trade discussions between the USA and China; the degree of genuine progress remains very hard to ascertain from the outside. The fund outperformed in this environment.

We added two new positions to the fund in May; Cellnex and Bawag. Cellnex, the Spanish owner of telecoms towers, operates in an industry with high barriers to entry, long term contracts and high levels of recurring free cash flows. In addition, the industry is consolidating and we see Cellnex as well positioned to acquire substantial additional tower assets over the medium term. The company trades at a material discount to similar, US-listed peers. During the month, we also participated in a secondary private equity sell down in the Austrian-listed, predominantly-retail focused bank Bawag. There are several aspects to our investment thesis. First, we see the core business as generating a high and sustainable Return on Equity, largely through their best-in-class cost base management; this is not reflected in the current valuation. Second, we see management as disciplined allocators of capital who are likely to find attractive opportunities to deploy capital into their core DACH region. Finally, with substantial excess capital, there is likely to be a prolonged period of share buybacks in the absence of material M&A.

The best performing positions during May included RELX, Deutsche Boerse and Linde, whilst the worst performing positions included Equinor, Brenntag and ADP.

We see RELX as a high quality business exposed to several attractive end markets. Its core businesses tend to have predictable revenue streams driven by subscription payment models, high margins due to consolidated competitive landscapes and high Return on Invested Capital on account of low capital needs and the aforementioned high margin structures. We continue to look through what we see as short term concerns (for example, over academic journal contract negotiations) and focus on the long term attractions. Deutsche Boerse has demonstrated a more resilient revenue performance than it has historically delivered in a tough equity trading environment; to us this highlights the increasingly diversified nature of its revenue streams. The company continue to over deliver on cost efficiency. Linde delivered strong, consensus-beating quarterly numbers in May that highlighted mid-single-digit underlying revenue growth and expanding margins.

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.
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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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