Fund Performance review
The fund returned -3.7% in the first quarter of 2018, outperforming the MSCI All Countries World Index which returned -4.4%.
From a sector perspective, the fund’s IT holdings contributed positively to absolute performance while our structural lack of exposure to the energy and materials sectors, areas where we believe it is difficult for a company to build sustainably growing and profitable franchises, contributed positively to relative performance. Meanwhile, holdings in the consumer staples sector detracted from performance.
Amazon was the most significant positive contributor over the quarter in absolute terms. The world’s largest ecommerce site has expanded both by geography and by the type of products sold, to become one of the world’s largest retailers. Its Prime membership program has helped drive customer loyalty and increased cross product promotions.
Moreover, the expansion of Amazon Web Services (AWS) has created the world’s largest cloud computing provider. Thus, the company continues to benefit from the strong secular growth trends in ecommerce and outsourced cloud computing services, where even in the highly developed US market, ecommerce still accounts for less than 15% of total consumer sales, and outsourcing to the “public cloud” is also low. The tailwinds to growth remain strong, and the franchise that Amazon has built is formidable, but valuation metrics have risen and additional upside may be more limited from these levels.
Cognizant also performed well. The company has a significant opportunity as its clients move towards cloud-based infrastructure and digital technology which it can help deliver. Cognizant’s roots are in India, a market with highly skilled IT workers but at a lower cost versus comparable workers in the US or UK. Therefore, it is able to provide its customers with a very cost effective service.
MasterCard was also among the strongest contributors in the first quarter. While cash still dominates when it comes to global payments, the increasing adoption of card-based payments looks set to continue. Key factors supporting increased use of cards include the growth of online retailing, innovations such as mobile point of sale technology and the growing use of prepaid cards. We believe that the increasing use of paperless payments over time and a continuing shift away from cash as a medium of exchange offers long-term investors attractive growth opportunities.
The fund’s most significant detractor was Tiger Brands, a South African consumer staples company. During the period Tiger conducted a product recall in their small packaged meats division due to a suspected outbreak of listeria at certain company-owned facilities. We believe that the response to this issue has been what we would expect of a high quality company and the financial impact very manageable. The company enjoys very strong market positions in its native South Africa, while it is also selectively pursuing expansion across sub-Saharan Africa, looking to benefit from the favourable demographics that exist in the region. We continue to own a large position in the fund.
|Discrete year performance
||Henderson Global Equity Fund (%)
||MSCI AC World 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 establishing a position in Electronic Arts (EA), the video game company which went on to become one of the strongest positive contributors during the period. EA has a very strong brand, developing and publishing games such as FIFA, Madden NFL, The Sims and the Star Wars franchise. Video games often now incorporate internet connectivity and offer in-game purchases which, through features such as FIFA Ultimate Team, create strong recurring revenue potential both through consoles and mobile devices.
We also added a position in Netflix. The company is becoming increasingly dominant in the video streaming market globally. Content is king in video streaming, with Netflix competing against the likes of HULU and Amazon Prime Video, and Netflix has shown a strong track record in developing compelling original content for subscribers. This emphasis on original content is also becoming stronger over time. The Chairman and CEO, Reed Hastings, co-founded the company in 1997, and has steered the company away from DVD mail rental towards becoming the leader in video streaming. It is this kind of proven leadership that the team likes to invest alongside.
These purchases were funded by the sales of our holdings in Walt Disney and ProSiebenSat.1 Media. Disney has a strong brand and consumer content offering which is complemented by ownership of television networks and theme parks but has become subject to disruption from over-the-top competitors such as Netflix. While Disney has the potential to present its own over-the-top offering in the long-term, we did not believe the current share price discounted the risk involved in this transition.
ProSieben’s core business is free-to-air TV in Germany, which is seeing falling viewership due to the disruption of traditional TV. This trend has increased the risk to advertising revenue on which the business is reliant and therefore we decided to exit the stock.
Fund manager's outlook
Our strategy is to avoid making major macroeconomic calls and to instead focus bottom-up on finding companies with underappreciated growth and high barriers to entry at attractive valuations. Through purchasing undervalued securities that are exposed to strong secular tailwinds of growth, we aim to generate significant absolute and relative returns over the longer term.
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.