The update below is authored by Janus Henderson Investors and reproduced, with permission, by Willis Owen.
As we write these lines the US ISM Manufacturing has just dropped deeper into the 40's, and Germany's manufacturing purchasing managers' index (PMI) recorded the lowest reading since mid-2009. The world's producers are clearly not in a happy place. Historically, this has proven an excellent time to buy selected cyclical stocks. Sure enough, value stocks staged a rally in early September and are once again trying to outperform around the turn of the month. In fact, PMIs are now underperforming what monetary expansion data - with the usual time lag of two to three quarters - would suggest. The reason is flaking corporate confidence against the backdrop of record policy uncertainty (trade war, Brexit, Hong Kong protests, fiscal stimulus etc). However, with rapid de-stocking underway across most industries, and with order data entering negative comps territory going back to the fourth quarter last year, it is hard to see ordering trends getting a lot worse.
By the time the ISM / PMI data reaches current levels, the softness in the economy is usually well understood. At least among the human investor base, we continue to feel quite isolated in our optimistic outlook for the market in general and our more cyclically tilted portfolio in particular. As stated a number of times before, we continue to abstain from European banks given the structural challenges to their business model. Instead, we are focusing our cyclical exposure on idiosyncratic ideas across the industrial, material and semiconductor sectors. The common trait of all these investment cases is strong management teams demonstrating unwavering focus on shareholder value creation, backed by strong balance sheet sheets. Amid the throng of quarterly earnings and other noise chasing algorithmic, robotic and human "investors" we spend a great deal of our time meeting these management teams to challenge our investment cases.
The fund rose by 2.6% over the quarter compared with a rise of 1.6% in the benchmark index, FTSE Europe ex UK, and a rise of 0.5% in the IA Europe ex UK per group benchmark.
Notable strong performers during the quarter included automotive safety systems manufacturer Autoliv as the threat of US plans to impose a tariff on Mexican imports was lifted. Finnish pulp and paper manufacturer UPM-Kymmene was a positive contributor as the company announced a new pulp mill investment over the period. The latter is expected to be highly accretive to earnings and could lead to greater than 30% earnings growth by 2023. The fund also benefited from holding international brewer Carlsberg which reported robust first half results and raised its 2019 year guidance.
Laggards included Finnish engineer Wasilla due to a poor order and trading outlook. Amid a weak energy sector and an overhang of lower oil prices, detractors also included SBM Offshore despite reporting good second quarter results and raising full-year guidance.
|Discrete year performance
||Janus Henderson European
Selected Opportunities Fund (%)
|FTSE World Europe
ex UK Index (%)
ex UK (%)
|1 year to 30/09/2019
|1 year to 30/09/2018
|1 year to 30/09/2017
|1 year to 30/09/2016
|1 year to 30/09/2015
* Source: Morningstar, at 30 September 2019, 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.
Index - FTSE World Europe Ex UK Index
Index usage - Comparator
The FTSE World Europe (ex UK) Index is a measure of the combined performance of large and medium sized companies from developed and advanced emerging European stock markets excluding the UK. It is the performance target for the Fund and provides a useful comparison against which the Fund's performance can be assessed over time.
Peer group benchmark - IA Europe ex UK
Peer group benchmark usage - Comparator
The Investment Association (IA) groups funds with similar geographic and/or investment remit into sectors. The fund's ranking within the sector (as calculated by a number of data providers) can be a useful performance comparison against other funds with similar aims.
Fund activity review
Key activity during the quarter included the introduction of the pharmaceutical company GlaxoSmithKline which is, in our view, undervalued in the healthcare sector. We rebalanced our telecoms sector exposure as we introduced Dutch carrier KPN following a meeting with the management team. The company has, in our view, a realistic chance of escaping the deflationary spiral troubling the overall industry and of delivering its mid-single digit per annum free cash flow growth ambition. Hence, it should trade at a material premium to the overall sector. Following recent years of underperformance we established a position in luxury goods name Richemont to complement our holding in LVMH. Finally, we rebalanced our materials sector exposure by introducing BASF and increasing UPM. On the sell side we booked some profit on our longstanding holdings in multinational food company Nestle and Anglo Dutch publisher RELX and sold our holdings in Vivendi, Siemens and Sanofi.
We believe European markets are set to surprise positively into the calendar year end and, as ever, our emphasis remains on stock selection based on bottom-up analysis.
Janus Henderson Investors
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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.] The Custodian in Spain is BNP PARIBAS SECURITIES SERVICES S.C.A.
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