Henderson European Selected Opportunities Fund Q1 2017 report

Posted by Guest in Fund and industry updates category on 27 Apr 17

Market review

Having entered 2017 believing that the world had shifted from a “growth” to a “value” market we note that European equities have fared well versus US counterparts since the Presidential election. With the fall in bund yields “growth” stocks resumed their outperformance in February while March saw a reversal in sector leadership as banks recovered some of the ground lost the prior month. This reminds us that equities continue to be sensitive to bond yield gyrations and associated inflation expectations. Indeed, this is at the heart of the continuing tug of war between “growth” and “value” stocks. In the former camp, we detect that a number of mid caps in particular look stretched.

Performance review

The fund’s net asset value (NAV) rose by 5.3% in the quarter compared with a rise of 7.5% in the benchmark index.

The materials sector was the strongest contributor to alpha over the quarter following bids for Akzo Nobel from US peer PPG. While there has been some resistance from Akzo Nobel management to engage with the US company we believe the deal makes strategic sense and therefore an agreement should be reached. At a stock level the fund benefited from its industrials holdings Volvo and Sandvik and its financials holdings Caixabank and Danske Bank.

The consumer discretionary sector lagged as automotive safety systems manufacturer Autoliv’s share price has been weak due to slower recent growth in active safety. Additionally, in passive safety, it has seen pressure on near term margins following a high volume of engineering projects in order to meet strong order intake. We reduced our holding.

Discrete year performance Henderson European
Selected Opportunities Fund (%)
FTSE World Europe
(ex UK) Index (%)
1 year to 31/03/2017  23.3 27.9
1 year to 31/03/2016  -5.4 -4.2
1 year to 31/03/2015    9.9   7.5
1 year to 31/03/2014  17.7  17.3
1 year to 31/03/2013  24.9  17.8
Source: Morningstar, at 31 March 2017, nav-nav, net income reinvested, net of fees, Class A Acc shares, in Sterling. Past performance is not a guide to future performance. Prices can go up and down and you may not get back the amount originally invested. NAV = net asset value.

Fund activity review

The fund’s tilt back towards so called "value" has been strengthened by our addition of names such as Trelleborg, which is benefiting from self help measures being implemented by management, and Italian agricultural machinery manufacturer CNH Industrial, where we foresee strong potential for earnings growth independent of the recovery in the agricultural equipment market. Following a meeting with management we added international beverage manufacturer Pernod where we believe the earnings growth outlook has improved.

In the banks sector we disposed of our holding in Credit Suisse as financial results were mixed and we initiated a position in Italian bank UniCredit where capital targets now look credible and its balance sheet issues have been tidied up. We continue to monitor inflation expectations as a key input to our banks positioning. During the quarter we reintroduced AstraZeneca to rebuild exposure to the pharmaceutical sector after a period of underperformance. In the same sector we sold UCB while other disposals included ISS and Deutsche Telekom.

Fund positioning and manager's outlook

European equities have performed well compared with their US counterparts since the US election. This is as it should be: Europe is more of a value construct than the S&P and our thesis remains that, providing the latter holds steady, Europe will have a strong year. The wall of worry continues to be scaled.

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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.

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Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 34U

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