Janus Henderson Global Equity Fund Q4 2019 report
Posted by Guest in Fund and industry updates category on 28 Jan 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 2.9% in the fourth quarter, outperforming its benchmark index, the MSCI ACWI, which returned 1.1%. The fund's peer group average IA Global returned 2.1%.
From a sector perspective, holdings in the communication services and information technology sectors were significant positive contributors to performance. The lack of holdings in the utility sector was also a positive relative contributor while holdings in the consumer staples and industrials sectors were notable detractors.
At the stock level, the Indian financial company, Housing Developing Finance Corporation (HDFC), was the fund's most positive contributor to performance over the quarter as its share price moved to an all-time high after a relatively weak third quarter. That weakness earlier in the year was driven by more widespread concerns about credit quality within the Indian banking system, and governance issues at some of its peers. However, HDFC has continued to stay disciplined on its underwriting practices, avoiding many of the more problematic areas of the economy while continuing to grow its loan book at a measured but impressive pace into the under-penetrated consumer mortgages market. The company's history of conservative lending continues to give it a funding advantage in the market, and its ability to sustain double-digit loan growth alongside mid-teens return on equity margins has led the share price higher.
Two of the fund's other key contributors in the quarter were the UK-listed online advertising companies Auto Trader and Rightmove. These two companies are the dominant market leaders in used car and real estate listings respectively, both benefiting from the network effect of being the leading sites for their markets. The continued structural shift from off-line to on-line market places, the extension of their product and service offerings into a sticky customer base, the recurring nature of their revenue streams, and their demonstrable pricing power continue to allow these companies to grow their cash flows in the double-digits. That they are achieving this in the lacklustre macroeconomic backdrop of the UK is impressive, and has been rewarded in their share prices.
Some of the fund's most significant detractors in the quarter came within the consumer staples sectors, with both Unilever and Pernod Ricard posting relatively weak performance. Our investment in Unilever is predicated on the strength of its global market positioning, its portfolio of strong consumer brands, products with highly repetitive purchasing habits, and its significant emerging market growth prospects. We believe that these characteristics will continue to drive long-term resilience and predictability to its growth, with a balance sheet and cash flow properties that we also believe are of high and sustainable quality. More recently however, Unilever has been experiencing weaker growth across parts of its portfolio, a function of some weaker macro markets and some tougher local competition. The resulting downgrade to the company's sales guidance has negatively impacted the share price.
Another detractor was Pernod Ricard, one of the world's leading spirits companies. We believe that growing consumption and increasing brand awareness across the developing markets will make premium spirits manufacturing an attractive industry for the long-term, particularly with the potential for a higher share of Chinese consumption to move towards international brands. Despite a little bit of recent volatility around quarterly sales and shipments, Pernod's business, market positioning and growth prospects remain strong.
There were several changes to the fund's holdings in the quarter. Among these were the introduction of the US-listed software company, Intuit, the UK-listed industrial technology company, Halma, and the UK-listed provider of analytical and research tools, RELX.
Intuit is a leading provider of financial, tax and accounting software to both small businesses and consumers. The network effect and competitive moat around branded consumer software can be a strong one, and Intuit has developed its brand in a way that gives it both differentiation and a strong incumbency advantage. It is a highly cash generative business model, and returns nearly all of this free cash flow to its shareholders. With a high proportion of recurring revenues and a net cash balance sheet, this company exhibits all of the high quality fundamental characteristics we look for when we invest.
Halma is a health and safety sensor technology company. It manufactures products that detect hazards and protects assets in the safety, environmental and healthcare markets. The company comprises almost 50 separate businesses across a diverse range of end-markets, but ones where demand tends to be non-discretionary in nature and where there are often high-specification standards and certifications that apply. This provides strong barriers to entry and customer loyalty. Halma is generally the market leader in the niches it competes in, and as a result the business has grown its revenues at a 10% and its earnings at a 12%, annualised rate over the last 10 years. With a highly-aligned management team, a strong margin structure, disciplined merger and acquisition (M&A) methodology and a robust balance sheet we believe this is a company well positioned to deliver long-term returns.
RELX is a leading global provider of information-based analytics and decisions tools, catering to a variety of industries and research sectors, including medical, legal and insurance. It benefits from the steady and predictable growth in research content, and demand for analytical business tools. As it digitalises its content the company has been able to diversify and segment its product offerings. The company has strong financial qualities in its cash flows, margins and balance sheet, and high barriers to entry given the legacy and reputation of its research publications and tools databases.
Among the positions sold to fund these purchases were the fund's holdings in IT-systems integrator, Cognizant, the German healthcare company, Fresenius, and the UK-listed hotel company, Whitbread. The law of large numbers is starting to challenge Cognizant's growth rate. While changes to German hospital regulations and some recent capital allocations decisions have reduced our conviction in Fresenius.
Whitbread has meaningfully changed as a company over the last few years after selling its Costa Coffee business to Coca-Cola in January 2019. Whitbread's primary business now is as the owner and operator of the Premier Inn hotel chain across the UK and Germany. While we consider there to be long-term growth in this market-segment and brand, we believe that the predictability and resilience of the business is becoming less clear given some of the macro backdrop it faces. With a valuation that we also believe leaves less scope for long-term upside, we decided to exit the position.
* 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.
|Discrete year performance
||Janus Henderson Global Equity Fund (%)
||MSCI AC World Index (%)
||IA Global (%)
|1 year to 31/12/2019
|1 year to 31/12/2018
|1 year to 31/12/2017
|1 year to 31/12/2016
|1 year to 31/12/2015
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 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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