Fund Performance review
The fund underperformed its benchmark, MSCI ACWI, in the final quarter of 2018, returning -13.1% versus a benchmark return of -10.6%.
From a sector perspective, holdings in the information technology, communication services and healthcare sectors were among the most significant detractors. Positive contributions came from holdings in the financials and real estate sectors.
Apple was a detractor over the period. Our investment in Apple has never focused on individual product releases and the success thereof. Rather, our ownership of Apple has been rooted in the strength of its brand and the consequent stickiness of its user base. However, we do have concerns about the maturation of the smart phone market, cheaper offerings from competitors, as well as lengthening upgrade cycles. While we view the valuation as still attractive and are encouraged by growth in Apple’s services business, we have been reviewing the fund’s position size as a result.
Video games companies Electronic Arts (EA) and Activision Blizzard also detracted from performance. Both companies saw their share prices fall on the back of company releases while also participating in the broader market sell-off. There has also been a heightened competitive release slate this year with smaller publishers making some successful launches. Maintaining a long-term view, we believe these two companies remain attractively positioned. Both companies have strong, enduring games franchises, whether that is EA and FIFA or Activision Blizzard and Call of Duty, and are exposed to intra-industry trends such as mobile gaming offering in-app purchases. The gaming industry is secularly growing driven by improving hardware and software. These improvements, however, come with increasingly high development costs; while smaller publishers will continue to produce high quality games, those increasing development costs create formidable barriers to entry favouring the incumbent large players such as Activision Blizzard and EA.
Indian financial services conglomerate Housing Development Finance (HDFC) was the most positive contributor to performance. HDFC’s origins are in housing finance but it has expanded to provide to life insurance, asset management and traditional banking services. HDFC has achieved growth over time by taking a long-term, disciplined approach. Its state-owned peers are more capital-constrained and face a variety of asset quality issues. Financial services penetration levels are still relatively low in India and with increasing demand for consumer credit, insurance and other services, HDFC is well placed to benefit from this structural trend.
American Tower, a leading global owner of communications tower infrastructure, was also a positive contributor over the quarter. The secular growth of mobile data usage underpins demand for communications towers while their importance is being strengthened by innovation in technology application as we add connectivity in our cars and purchase more smart devices. Towers are very economical as they require little maintenance capital expenditure, are highly cash generative and can generate a return on investment of over 20% with just three tenants. The company has a proven management team with CEO Jim Taiclet having led the company since 2004. He has successfully overseen an expansion outside of the US, where the company has the potential to expand further into emerging markets where infrastructure is less developed.
|Discrete year performance
||Janus Henderson Global Equity Fund (%)
||MSCI AC World Index (%)
|1 year to 31/12/2018
|1 year to 31/12/2017
|1 year to 31/12/2016
|1 year to 31/12/2015
|1 year to 31/12/2014
* 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
In terms of activity, we initiated a position in InterContinental Hotels Group (IHG) which operates hotels across the world. IHG has historically been very cash generative and has high, and expanding margins. With their strong brands, Intercontinental, Holiday Inn and Crowne Plaza, we believe IHG is well positioned to benefit from increasing hotel room demand driven by demographics, increasing incomes and economic growth. Elsewhere, we sold positions in Cognex and Valeo.
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 enter at 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.
Janus Henderson Investors
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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.
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