Janus Henderson Global Equity Fund Q1 2020 report
Posted by Guest in Fund and industry updates category on 29 Apr 20
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The update below is authored by Janus Henderson Investors and reproduced, with permission, by Willis Owen.
Fund performance and activity
The fund returned -9.5%, outperforming its benchmark index, the MSCI All Countries World Index, which returned -15.5%. The fund's peer group average IA Global returned -15.7%. Relative to its category peers, the fund was 17 percentile in the month.
The fund had a strong quarter and from a sector perspective, energy and financials helped performance. Both sectors underperformed the market and, given our lack of exposure to oil companies and banks, the fund benefited. In aggregate, our holdings in the consumer staples and communication services sectors detracted from performance.
Netflix was the strongest contributor during the quarter. Its fourth quarter results showed stronger-than-expected subscriber growth, delivering strong year-on-year revenue growth, a material improvement in operating margins and high free cash flows. While that helped performance, the Covid-19 impact on daily life had an even greater impact as lockdowns have created an unexpected boost to potential subscribers. With consumers effectively forced to stay at home and with little else to do to entertain themselves, increased consumption of media looks almost certain. Netflix has been a global leader in delivering high-quality media and had already been successfully penetrating many households.
Novo Nordisk also delivered a solid set of financial results, providing evidence that it was growing faster than the industry with its market leading position in diabetes. We continue to believe that it is a market that will continue to grow, given demographic trends. Novo also has an exciting pipeline and the service it delivers is critical to anyone requiring it, irrespective of Covid-19. In a market that fell sharply towards the end of the quarter, Novo proved relatively defensive and was one of the fund's top contributors.
Housing Development Finance Corporation (HDFC), the Indian provider of long-term housing loans to low and middle income individuals, was the fund's biggest detractor. Underlying business trends had been good with strong growth in net interest income and assets under management. However, the economic impact of Covid-19 was very impactful on sector sentiment and asset quality was a concern for investors.
The Reserve Bank of India responded, increasing liquidity within the sector as well as giving a payment moratorium. We believe HDFC is well positioned to deal with the environment with its historically lean cost structure and good liquidity, plus its focus on the salaried customer segment. We do not believe the long-term structural attractions of HDFC's market will change as the Indian mortgage market was underpenetrated and had favourable demographics before the crisis.
InterContinental Hotels Group (IHG) was another detractor. The leisure space has been one of the hardest hit industries in the face of Covid-19 lockdowns and IHG was no exception. With huge travel restrictions in place globally, spending on lodging has fallen to unprecedented levels. Revenue per available room (RevPAR) in Greater China fell 90% in February and this could well be replicated across the other markets IHG operates in as the virus spreads and lockdowns ensue. As a short-term measure the company cancelled its dividend, reduced capital expenditure plans and reduced staff salaries - including at board and executive level. There is clearly uncertainty, particularly around the duration of the lockdowns, but IHG has historically had a solid financial footing, been asset light and cash flow generative. And while the travel sector has had setbacks before, the long-term growth rate has consistently outstripped GDP growth.
In terms of activity, we purchased Facebook, the world's dominant social network, in January at what we thought was an attractive valuation. The underlying business trends there have been strong and we believe cost increases are now understood, with margins having been reset. Importantly, progress has also been made on ESG issues in key areas such as privacy, misuse of data and risk of mental health impacts.
We also added Symrise, a Germany-based leading global flavour and fragrance business. It services the growing demand for beauty, health, wellbeing, convenience and a shift to more natural ingredients, where vertical integration has been one of its competitive advantages that has helped it outgrow the peer group. Historically, it has also been earning attractive margins and return on capital.
Elsewhere, we bought Tencent, the Chinese online gaming, messaging, advertising and payments company. While the premium valuation placed on the company kept us cautious, the market correction during March provided an opportunity for us to purchase the stock at what we thought was an attractive valuation. We also added Alibaba, the Chinese ecommerce and payments company, where a market correction in March again provided an opportunity to purchase the investment at what was an attractive valuation to us.
We exited our positions in the gaming industry, selling Activision Blizzard and Electronic Arts. Our primary concern in the sector has been the rise of free-to-play gaming which may impact the ability of firms to monetise games. We also sold Xylem, the global water and waste water solutions business. The stock held up relatively well in the market downturn but we think the prospects of cyclical industrial companies may be more challenged in the future.
* Source: Morningstar, at 31 March 2020, 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.
|Discrete year performance
||Janus Henderson Global Equity Fund (%)
||MSCI AC World Index (%)
||IA Global (%)
|1 year to 31/03/2020
|1 year to 31/03/2019
|1 year to 31/03/2018
|1 year to 31/03/2017
|1 year to 31/03/2016
Index - MSCI All Countries World Index
Index usage - Comparator
The MSCI All Countries World Index is a measure of the combined performance of large and medium sized companies from both developed and emerging stock markets around the world. It provides a useful comparison against which the Fund's performance can be assessed over time
Peer group benchmark - IA Global
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.
As ever, 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 what we consider to be attractive valuations. Through purchasing undervalued securities that are exposed to strong secular tailwinds of growth, we aim to generate attractive returns over the longer term.
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