Janus Henderson European Selected Opportunities Fund Q4 2019 report

Posted by Guest in Fund and industry updates category on 27 Jan 20


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The update below is authored by Janus Henderson Investors and reproduced, with permission, by Willis Owen. 

Market review

An exceptionally strong year for European stocks has ended. History suggests that it is likely to be followed by another positive year, though with more volatility and overall much lower general stock market returns. Often it is when things go from deterioration to 'less bad' and stabilisation that the greatest market gains are realised, but when things go from stabilisation to 'better', equities have often already anticipated part of the improvement.

This chimes with our top-down view of the world. We were proven right over the second half of 2019 in our bullish and pro-cyclical view as the macro data stopped deteriorating and, over the last few months, showed nascent signs of improvement. This coincided with bearish investor positioning in equity markets and record valuation gaps between growth and value stocks. For the New Year though, global money creation trends suggest economic momentum is likely to remain weak over the first quarter, with a chance to revive from the second quarter.

Further monetary pick-up is needed, in particular from China, to confirm the stronger recovery scenario which is now beginning to get priced into stocks. Inventory de-stocking across many cyclical sectors - a point we belaboured regularly over the last year - has largely completed and, eventually, the re-stocking effects will kick in and contribute positively to GDP growth. However, the longer lead time capital expenditure and employment cycles remain fragile.

The politicisation of global trade has impacted the psyche of management teams and it seems this may well remain an overhang, reining in animal spirits apropos business investments. After all, a phase one trade deal between the US and China is still not signed and phase two negotiations may very well get trapped in the run-up to the US presidential election. Stocks are no longer as attractively valued as they were in 2019 when many cyclicals were priced for recession. The fear of missing out has lately forced more investor participation in the stock market rally.

Performance review

The fund rose by 2.6% over the quarter compared with a rise of 0.9% in the benchmark index, FTSE Europe ex UK, and a rise of 2.7% in the IA Europe ex UK peer group benchmark. This brings the overall 2019 return to 22.8% versus an index return of 20.5% and a peer group return of 20.6%. The standout performer over the quarter was semiconductor holding STMicroelectronics as it continued its strong year-to-date run following sector optimism as well as the company's specific 2020 growth prospects.

Also among the positive contributors was Kion, the largest manufacturer of industrial trucks in Europe and a global leader in automation technology, which reported solid results. Encouragingly, order strength was not just in warehouse automation but forklift trucks on account of its often-ignored defensive nature. Almost half of forklift truck segment sales are from services that have exhibited stable growth even in recessions.

Other strong performers in the fund included Finnish pulp and paper manufacturer UPM-Kymmene. Pulp markets are in the process of working off excess inventories and UPM has the only sizeable new pulp mill in the global capacity expansion pipeline. Entry barriers are very high, and this mill alone could lead to greater than 30% earnings growth by 2023. German automotive, defence and electronics group Rheinmetall lagged and we booked some profit on the position.

Discrete year performance Janus Henderson European
Selected Opportunities Fund (%)
FTSE World Europe
ex UK Index (%) 
IA Europe
ex UK (%)
1 year to 31/12/2019       22.77     20.45   20.55
1 year to 31/12/2018        -9.76      -9.45   -12.16 
1 year to 31/12/2017        12.53      17.53    17.44 
1 year to 31/12/2016        16.14      19.69    17.01 
1 year to 31/12/2015           8.78         5.35      9.25 
* Source: Morningstar, at 31 December 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

Activity over the quarter included the introduction of French pharmaceutical firm Sanofi, where we are encouraged by much-needed management change. Following a meeting with its management team we established a holding in Swedish construction and mining machinery manufacturer Epiroc as we believe its commodities exposure mix remains attractive and its exposure to underground has high growth potential from automation and electrification. In addition, internal efficiency measures should drive return to peak margins.

In the Nordic region we disposed of Finnish engineer Wartsila due to poor prospects, switching the proceeds into Swedish industrial Sandvik. The latter is trading at meaningful discount to the capital goods sector despite continuing improved resilience to the cycle and we believe the stock should re-rate to quality cap goods levels. We also booked profit on German chemical company BASF due to concerns over full-year 2020 guidance, returning to semiconductor name Infineon Technologies for its cyclical upside and clearer view on inventory cycle than exists at BASF.

Due to lower conviction we disposed of Finnish oil refiner Neste as we believe that raw material price increases are unlikely to be fully passed on to customers. A consensual and richly valued long position, there are emerging questions around earnings growth next year. On the sell side we also disposed of Pernod Ricard and Ericsson following disappointing performance.

Outlook

From the macro environment described above, the upcoming year may well lend itself to our strategy which remains focused on a portfolio of bottom-up, well-researched stock ideas, reasonably balanced across sectors and factors, avoiding strong tilts, be they factor or style. 

Janus Henderson Investors

201 Bishopsgate, London EC2M 3AE

Tel: 020 7818 1818 Fax: 020 7818 1819

Important Information

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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