The cooling off in market sentiment and lighter positioning during the second quarter formed the foundation for a relief rally in July. This was helped by European macroeconomic data generally beating lowered expectations, and a vague agreement between US President Trump and EC President Juncker to lower trade barriers.
The gains were surrendered in August however, despite a further rise in the European economic surprise index, bearish sentiment and light investor positioning. The overhangs from the global recovery becoming ever less synchronised, a worsening emerging market currency crisis, the trade war, and less accommodative monetary policies in the major economies of the west and Japan, in addition to (what is becoming a constant in Europe) political risks, simply proved overwhelming. Only the US equity markets, perceived to be easy and liquid safe havens, seem unaffected and reached new all-time highs as the Nasdaq Index in particular rallied sharply.
European markets again demonstrated considerable volatility in September. They started the month very weak before, as is so often the case, rallying sharply coming into the triple witching day (when the contracts for various options and futures expire on the same day), only to reverse course in the closing days of the month. The latest “mania du jour” after the likes of crypto-currencies and FAANG (the most popular technology stocks) played out in marijuana stocks. Here, Tilray shot up nearly 20-fold in a matter of weeks following its initial public offering (IPO), only to halve within hours. Meanwhile it seems the Tesla bubble is also bursting.
The fund rose by 2.3% over the quarter compared with a rise of 3.1% in its benchmark index.
|Discrete year performance
||Janus Henderson European
Selected Opportunities Fund (%)
|FTSE World Europe
(ex UK) Index (%)
|1 year to 30/09/2018
|1 year to 30/09/2017
|1 year to 30/09/2016
|1 year to 30/09/2015
|1 year to 30/09/2014
* Source: Morningstar, at 30 September 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
Key activity included the reintroduction of French pharmaceutical Sanofi where, under new management we envisage a return to growth with a less risky portfolio. Modifying our commitment to the healthcare sector we also added to our position in Roche.
In the aerospace sector, amid strong structural growth in overall aircraft demand - and specifically narrow body aircraft - we added Airbus, which enjoys a solid order backlogs of around nine years. Encouraging second quarter results were mainly attributable to working capital management and good progress on the A350 model ramp up.
Elsewhere, we reshaped our German autos positions via the introduction of Volkswagen and the sale of Continental. We believe the shares of the former are attractively valued and stand to benefit from cost initiatives in the coming months.
Finally, we participated in the IPO of Swiss Tetra Pak peer, Swiss Combibloc, which we believe is a decent business that is coming to market at a reasonable valuation.
To fund the above purchases we exited our positions in Nokia, Schneider Electric and Vestas Wind Systems and sold our holding in BASF, where we anticipate earnings downgrades. The board of Smurfit Kappa indicated that it had rejected the bid from International Paper earlier in the year on the basis of its mid-term value assessment and we continued to use periods of strength to take profit on the holding. We also reduced our holding in information technology stock United Internet reflecting our concerns about the competitive landscape changes in the German mobile market.
Indiscriminate outflows, resultant light investor positioning and a record valuation discount to the US remain Europe’s key supporting factors in the near term. As ever, political risk is one of the major overhangs. Chancellor Merkel’s tenure looks more precarious by the day, Brexit remains unresolved and Italy’s latest budget draft of 2.4% deficit for each of the next three years remind us that sovereign crisis fears are never far from the surface.
The trade war began in earnest on 24 September when the first of the more severe tariff rounds came into effect. Economic activity was likely heightened ahead of this deadline and the fourth quarter may to some degree benefit from an increase in demand ahead of the next step-up in tariff levels at the turn of the year, though that is more relatively speaking. US home-building stocks have entered a bear market, which must surely be another warning sign on the cycle after numerous auto company warnings. Finally, the US yield curve has simply refused to steepen despite all the talk about long-term bond rates breaking out to the upside.
In light of the above we continue to tread cautiously and with a firm trading discipline.
Janus Henderson Investors
201 Bishopsgate, London EC2M 3AE
Tel: 020 7818 1818 Fax: 020 7818 1819
Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment 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. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.
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.
Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. [We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.]
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.
: Willis Owen do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser. The views and opinions contained herein are third party and may not necessarily represent views expressed or reflected by Willis Owen.