Henderson European Focus Trust

HEFT offers investors flexible exposure to Europe, with a current tilt toward value supporting the potential for returns…

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Henderson European Focus Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Henderson European Focus Trust

Henderson European Focus Trust (HEFT) offers investors a flexible approach to large-cap European equities. The managers, John Bennett and Tom O’Hara, have an investment ‘DNA’ which is composed of six distinct facets, encapsulating both financial analysis and their general philosophy around investing. The team are acutely aware of the need to remain flexible, and avoid becoming married to a single style of investing. They believe that such an approach will ultimately prove of value to HEFT’s shareholders by avoiding prolonged underperformance when a specific style is out of favour. We discuss the investment philosophy of the team in further detail in the Portfolio section.

The team have recently made substantial changes to their portfolio in order to capitalise on the post-pandemic V-shaped recovery across varying sectors. During the second quarter of 2020 the team positioned HEFT to capitalise on the recovery in industrial stocks, foreseeing the rapid revival in industrial output. The team have unwound this trade at the start of 2021, having now positioned HEFT to take advantage of the second V-shaped recovery, this time in consumer-sensitive stocks. The impact of the team’s flexibility is clearly seen in their performance because they have outperformed their benchmark over the long term, and have generated even stronger near-term performance, as we describe in the Performance section.

HEFT currently trades at a Discount to its peers, despite its recent outperformance. We believe this is likely a consequence of investors’ historical avoidance of European equities, rather than a factor unique to HEFT. We also note that HEFT has good ESG credentials – even with its recent allocation to value-oriented stocks – as a result of the managers’ holistic approach to investing.

Kepler View

HEFT offers something we believe is rather rare in either the open- or closed-ended European equity space: a team who successfully incorporate top-down factors in their investment process. In doing so they diversify the source of HEFT’s alpha, offering investors not just successful stock-picking but also a macro overlay which enables HEFT’s style exposures to shift over a given cycle.

In contrast to the vast majority of the European peer group which have a clear growth bias, HEFT offers a differentiated proposition at the current time. In our view, HEFT is currently well positioned as a partial inflation hedge. This is thanks to its increased allocation to financial stocks, lower overall valuation metrics and recent overweight to consumer discretionary stocks (which will likely be the driver behind near-term inflation as demand picks up). As such, and potentially of relevance to the discount, HEFT may be increasingly attractive to investors as the recovery continues if the prospect of inflation continues to raise its head.

In our opinion, the recent performance of HEFT illustrates the potential of having a flexible approach to investing. The team have made decisive moves to position towards industrials first, and then latterly towards consumer discretionary as the recovery took hold. In doing so they have altered the overall style tilt of the portfolio, yet have also successfully generated significant alpha. Such actions are inevitably difficult to time, but we are encouraged not only by HEFT’s recent outperformance but in hindsight also by the timeliness of the team’s trades.

bull bear
Flexible investment process that can adapt to changing markets, with strong performance during the pandemic Active macro allocation decisions add potential timing risk
Long-term outperformance from stock-picking May underperform in the near term if the market quickly reverts to favouring growth over value
Currently a very differentiated position relative to the growth-focussed peer group Allocation to oil majors and cement manufacturers may be unpalatable to investors operating explicit ESG screens
David Johnson
David is an investment trust analyst and joined Kepler in September 2020. Prior to this he ran multi-asset model portfolios at a discretionary fund manager, and has worked in both asset management and investment banking during his career. He holds a Masters in Finance from the University of Warwick and is a CFA charterholder.

Fund History

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This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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