The biggest surprise at the half year stage is that “growth” has outperformed “value”. At a time when the European economy is in rude health and macro indicators are being corroborated by most companies we engage with we would have expected less ardour for “quality growth” stocks. Of course the bond market remains pertinent to the debate and here we are even more perplexed: all those savers, insurers and pension funds willing (or forced by wrong-headed regulators) to lend their money on long duration at paltry yields to less than infallible sovereigns must surely pray that inflation is a relic. Similarly, many “bond proxies” in the equity market only make sense at current prices if a disinflationary environment prevails.
The fund’s net asset value (NAV) rose by 6.3% in the quarter compared with a rise of 5.2% in the benchmark index.
The strongest sector contributors to fund performance over the quarter were financials and materials. The only sector theme we are expressing this year continues to be banks and returns were driven by ING and KBC. At a stock level containers and packaging industry company Smurfit Kappa was among the top performers as the company announced an increase in kraftliner and testliner prices.
Industrial names CNH Industrial and Volvo reported robust first quarter results. The fund lost performance in the energy sector. We sold our holdings in Statoil and ENI and exited oil service play TechnipFMC which has been adversely affected by a falling oil price and concerns on the order book as we concentrated our energy exposure in GALP Energia.
|Discrete year performance
Selected Opportunities Fund (%)
|FTSE World Europe
(ex UK) Index (%)
|1 year to 30/06/2017
|1 year to 30/06/2016
|1 year to 30/06/2015
|1 year to 30/06/2014
|1 year to 30/06/2013
* Source: Morningstar, at 30 June 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
In terms of trading activity we added Carlsberg. After years of weak operational performance, the Carlsberg board appointed a new CEO aimed at improving the efficiency of the organisation. We also initiated a position in low cost carrier Ryanair in the belief that there will be a consolidation of the short haul European airline market from which Ryanair will be a major beneficiary in terms of value creation.
A pullback in the share price provided the opportunity to initiate a positon in renewable energy equipment manufacturer Vestas Wind Systems. Wind is approaching grid parity in an increasing number of locations with the end of subsidies in sight. In the industrials sector we increased our position in Finnish industrial lift manufacturer Kone where we foresee a return to outperformance following recent years’ concern over Chinese demand.
While we have continued to see positive operational delivery from AholdDelhaize we feared that the increasingly competitive landscape in the USA would dominate the equity story in the short term and therefore reduced our position. Following confirmation by ChemChina that all regulatory approvals and conditions had been obtained or satisfied for its planned takeover of Swiss agri-business giant Syngenta, the biggest foreign purchase by a Chinese Company, we tendered our shares on behalf of all funds.
Fund positioning and manager's outlook
Notwithstanding a bout of profit taking in recent weeks European equities remain, in our opinion, in a bull market. As alluded to above, the key question for us is whether the shape of the market will change. In this respect our tilt in favour of value, established in 2016, remains intact. Integral to this is our weighting in banks – a sector which always makes for lively debate given its near death experience. While it has seen no help from the bond market, we are much encouraged by bottom-up, stock specific progress across the sector. Earnings are no longer an automatic quarterly downgrade by analysts and, crucially, balance sheets have largely been restored to full health. It remains a sector laden with investor scepticism and unnerving share price volatility but we stay the course. Roll on a normalised yield curve.
Janus Henderson Investors
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