Fund manager commentary – Henderson EuroTrust

01/07/2019

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After a weak May, European equity markets bounced strongly in June, seemingly led by increasingly dovish central banks. We have no strong insight on where we are in the economic cycle, but we continue to see reasonably valued equity markets (European equity markets are less expensive than their 30 year average when looking at dividend yields) alongside super-accommodative monetary policy; the latter two have usually been a positive combination for equity markets. June was a strong month for relative performance of the Trust.

We initiated no new positions during the month and neither did we sell any of our existing holdings. The only trade that we made was to increase the weighting of Osram, a ‘Special Opportunities’ position. Simply put, given the share price sell-off during May and the early part of June, we saw the risk/reward as increasingly favourable; there is substantial upside in the scenario of a private equity takeover and, in our view, only limited downside to a fundamental fair value if a deal doesn’t happen.

There were a few notable contributors and detractors during the month that are worth mentioning. First, SAP, the German software company and one of our largest positions, outperformed strongly during the month. In the short term, it is clear that SAP has received a boost from equity market strength, central bank accommodation and from Elliot’s recent public backing. We however, are far more interested in long term prospects and continue to see a defensive business model with prospects for a significant improvement in profitability and return on capital over a multi-year view. Second, Grifols performed well. The major short term trigger for this strong performance was the company’s Investor Day where they outlined continued strong growth in demand for their products as well as an intention to delever the balance sheet and to improve margins in the long term. As with SAP, we applaud Grifols’ willingness to think about the business and about capital allocation on a long term view. Finally, Assa Abloy also deserves a mention. Our investment thesis on Assa Abloy is based around a stable and predictable business model (selling locks, mostly for replacement use rather than for the new build market) alongside an attractive, multi-year replacement cycle as consumers and businesses upgrade from (electro-) mechanical locks to smart locks. Over the last month, the shares have bounced after a weak May.

From the list of detractors, Vivendi is worthy of comment.  Having announced strong results both at their recent full year numbers (February) and at the Q1 stage (April), the shares have given back some ground in recent months for non-fundamental reasons. Essentially, the market is concerned over apparent delays in the process to sell a significant minority stake in their currently 100% owned business Universal Music Group (UMG). It is worth mentioning that we are invested in Vivendi primarily on account of the long term attractions that we see in the music content ownership (as opposed to distribution) business. In reality, we are fairly indifferent as to whether Vivendi sell this stake now, in 12 months’ time, or even don’t sell it at all. It is the long term fundamental value that we are far more interested in.

As described above, June was a relatively quiet month for trading on the Trust. This was largely because we are happy with our current positioning. We continue to allocate an appropriate portion of our time to the identification and thorough research of new ideas, but we have not recently found anything that we see as more attractive than our current holdings.

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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