Henderson EuroTrust aims to deliver superior total returns from a portfolio of high quality European (ex UK) investments. Tim Stevenson has been running the portfolio for the past 24 years, however in the past few months he has announced his retirement and it has been announced that James Ross will be taking over as lead manager. James joined Janus Henderson in 2007 as a graduate, initially working as a trainee fund manager in European equities, before becoming a co-manager on the Henderson UK Alpha Fund (OEIC) in 2013. After spending three years on the UK team, James was delighted to be offered the chance to move back to the European equity markets team. James was appointed deputy fund manager on EuroTrust in March 2017 and then co-manager at the start of October 2018; and he works with Tim on the Henderson Horizon Pan European Equity Fund.
Despite a change in manager the investment process and style in which the £244m trust is run will remain largely the same. The portfolio will continue to be comprised of good quality, reliable companies which offer consistent returns for the shareholders. This is achieved through selecting companies with strong market positions, strong balance sheets, consistent growth and high-quality management. Although many of the companies share common characteristics, the managers split the holdings into three broad classifications; compounders, improvers and special opportunities.
Because of the outlook of the managers, and the types of company that they are looking for, Tim and James have biases within particular sectors. The company’s largest overweight is towards the healthcare sector (9%). Within this, Tim is particularly bullish towards the healthcare services, whereas James prefers the pharmaceutical subsector. Both managers also see opportunities within the IT and industrials sectors.
Previously the portfolio has been comprised of around 50 stocks (between 40 and 60), with no benchmark 'fillers'. However, James is looking to further concentrate this figure and, since joining Tim, has reduced the portfolio down to 43 positions (at the time of writing). Once he has full control of the portfolio, he anticipates the portfolio will be comprised of between 40 and 45 holdings.
The trust has an extremely admirable long-term track record, and since inception has delivered an annualised NAV return of close to 11.5%, almost 5% greater than the benchmark MSCI Europe (ex UK), c.5% greater than the IA Europe sector, and c.4% greater than the AIC Europe peer group. This having been said, the trust has been unable to deliver positive returns since the start of 2018 (-4.7% to 14th November), however much of this can be attributed to the correction we have seen in October. Nevertheless, the trust has still managed to outperform the benchmark (-5.9%) and the open-ended peer group (-6.8%), but has lagged the AIC peer group (-1.8%).
Although the trust has more of a focus on growth and total returns rather than the dividend per se, the board and manager do aim to provide a growing level of dividends to shareholders. The portfolio currently yields 2%, in line with the weighted average of the AIC sector.
The trust’s discount has been known to fluctuate, and as of the start of November the trust is trading on a discount close to 8%. This is slightly wider than the one-year average of -6.2%.
The trust has an exceptional track record in terms of performance, and it appears that Tim has passed his ex-UK ‘quality growth’ style of stock picking onto James Ross. Therefore, we see no reason why James couldn’t continue in the same fashion, albeit with a few changes to the portfolio. We particularly like the fact that James recognises that his role is to have conviction, which if he is successful will add alpha. We will be interested to see how this punchier, more concentrated portfolio progresses.
In comparison to peers, the trust has managed to outperform over most time periods and has done well to limit the losses during the correction in October. The past year has been a tough time for European equities, with the political situation making many investors shy away from the region. This has meant that we have seen the discount widen to almost double-digit figures; however as we have seen multiple times previously, we may see the discount narrow significantly should sentiment towards Europe improve.
|Exceptional track record of outperformance relative to peers and the benchmark
||James is a less experienced new manager, and may not be able to ‘fill Tim’s boots’
|The Janus Henderson set up should mean a relatively easy transition to a new manager
||Uncertainty continues to cloud investor sentiment towards Europe
|Discount is at a historically wide level