Fund Manager commentary - Henderson EuroTrust

09/09/2019

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After a strong performance from equity markets year-to-date, the major European indices had a soft month. The Trust fared better than its benchmark during this period.

August was a quiet month for markets but was actually a relatively busy period for trading activity and we initiated two new positions; Schindler and CNHI. Knorr Bremse and Renault were sold to make way.

Schindler, the Swiss Elevator company, is a high quality, high return on invested capital business with the scope to benefit from both medium term margin improvement and short term industry consolidation. On the former, we feel that the company has been slow to integrate modern, efficient, modularised production when compared to its peers; this is something that they are now trying to address and this should result in margin improvement over the coming years. With regards to the latter, the industry is currently undergoing what appears to be a ‘final’ wave of consolidation. We see Schindler as well placed to benefit in this environment; consolidation should bring even more stability to this already consolidated market.

Finally, we bought a small position in CNHI, the Italian listed agriculture and commercial vehicle manufacturer. We see CNHI as a classic ‘Returns Inflections’ opportunity. Margins are low versus peers, the new management team seem very focused on changing this and have made some strong early progress and the valuation of the equity is extremely cheap. If CNHI are able to improve operating efficiency over the medium term, we envisage a material rerating. After we initiated this position, the company announced medium term margin targets and a split of the business into ‘On-Highway’ and ‘Off-Highway’; we view these developments very positively.

Notable strong performers during the month were Novo Nordisk, Bayer and SIG Combibloc whilst the major detractors were Assa Abloy, Amundi and Vestas.

We are comfortable in our current positioning, but continue to allocate an appropriate portion of our time to the identification and thorough research of new ideas.

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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Please read the following important information regarding funds related to this article.

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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