Markets do, eventually, remind us that momentum works both ways and the early weeks of 2018 have served up just such a reminder. As 2017 developed, our sense of unease extended beyond what may be considered examples of exotica, such as “unicorns” and cryptocurrencies: we continue to believe that the US equity market itself has been hijacked by momentum players, whether human, robotic, algorithmic, or the artificially intelligent. While European stock markets are home to much less in the way of glamorous technology companies, we must always be aware that US markets set the tone. It remains our belief that the latter are overvalued.
The fund fell by -4.2% in the quarter compared with a fall of -4.7% in the benchmark index.
Key contributors over the quarter came from the paper and packaging sector. As we highlighted in recent reports there are encouraging signs that volatility and stock dispersion are making a long overdue return, providing opportunities for active managers. Having taken advantage of the recent move in Smurfit Kappa to increase our position, the fund gained from its holding as the company rejected an unsolicited bid from US peer International Paper. We added to our position. From the same sector, Finnish pulp and paper manufacturer UPM-Kymmene benefited from strong product price momentum in the first quarter of 2018.
The fund also benefited from holding Autoliv, a key holding in the auto components sector, as the company’s fourth quarter 2017 results and strong guidance for 2018 lead to broker upgrades. We took advantage of a rising share price to new highs to take some profit. Other strong performers in the fund over the quarter included Norwegian fish farming leader Marine Harvest which is benefiting from continuing strong global demand for salmon. By way of contrast performance was adversely affected by our holding in Anglo Dutch publisher RELX, a consistent contributor to performance over the long term.
|Discrete year performance
Selected Opportunities Fund (%)
|FTSE World Europe
(ex UK) Index (%)
|1 year to 31/03/2018
|1 year to 31/03/2017
|1 year to 31/03/2016
|1 year to 31/03/2015
|1 year to 31/03/2014
* Source: Morningstar, at 31 March 2018, nav-nav, net income reinvested, net of fees, Class I 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
Activity over the quarter included a new position in Safran from the aerospace sector. We believe that the company, which completed the acquisition of French competitor Zodiac in March 2018 at a price lower than its initial offer, will generate robust future cash flows. German sports retailer Adidas proved to be an excellent performer for our funds in 2015/2016 and following a stock derating we reintroduced the shares based on the company’s strong margin potential. In the insurance sector we introduced Zurich Insurance where we are attracted by a positive delta to rising interest rates and a secure dividend.
We reshaped our capital goods allocation by disposing of Siemens and adding Schneider Electric, which in our view is trading on an attractive valuation and is demonstrating an improving growth rate. Elsewhere we sold Italian utility Enel and exited Axa, which lagged after announcing the acquisition of XL Group.
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Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which 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 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. © 2018, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC.
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