Henderson European Trust 23 October 2024
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Henderson European 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 Trust (HET) is the product of the July 2024 merger of Henderson European Focus Trust (HEFT) and Henderson EuroTrust (HNE), and is co-managed by Tom O'Hara and Jamie Ross, the respective managers of the two trusts . In the Portfolio section we discuss how HET looks compared to its predecessors, but essentially it continues with the concentrated forty or so stock portfolio approach of both, homing in on companies the team see as global leaders. While there is currently a quality growth tilt to the portfolio, the team take a pragmatic approach to investing, and aren't bound by a particular investment style.
Tom and Jamie both have a track record of outperforming HET's benchmark and have worked together for several years within the 11-strong European equities team at Janus Henderson. The two predecessor trusts had a c. 50% overlap in portfolio immediately before the merger and since then they have made various changes, for example reassessing and reducing exposure to the luxury goods sector and more recently taking positions in some interest rate sensitive stocks in the utilities, telecommunications and REIT sectors.
HET trades at a c. 12% discount, in line with its five-year average, and a little wider than the peer group average of c. 9%. In July HET was promoted to the FTSE 250 Index, which could create additional demand for the shares in due course.
HET is primarily aimed at producing capital growth but nonetheless has an attractive 2.4% Dividend yield. The merger created changes to the timing of dividends in 2024, but the expectation is to return to a similar pattern established by predecessor HEFT. HET is currently geared just under 4%, with most of its long-term, low-cost Gearing deployed. Any additional gearing will be funded by short-term borrowings.
We've discussed the rationale for the merger to create HET in a previous note , but in summary, a larger trust has cost efficiencies, a broader investor audience and is more liquid. In HET's case, the merger was executed at no cost to shareholders of either trust and it also brings together two managers whose approaches had already converged, so while there are a few corporate refinements to HET, which we look at in the Charges and Discount sections, changes to the portfolio following the merger are mostly related to investment decisions by the team rather than for technical reasons.
Merger aside, the business of fund management never stops and the pair have been busy reassessing their position in the luxury goods sector, now reduced, and looking for ways to 'lean in' to the interest rate cutting cycle, taking a new position in the real estate sector. This is an interesting time for European equities, with large stocks in particular performing well over the last year despite very muted investor sentiment, which we look at in the Performance section.
In a recent article we discussed some reasons why macro-factors for Europe don't necessarily map across to European equities, and HET is a very good example of this, with a portfolio of companies expected to grow due to global trends in healthcare, IT spending, energy security and deglobalisation and thus not especially tied to their country of listing.
For readability, we will simply refer to HET when we are referring to historical factors relating to Henderson European Focus Trust (HEFT), unless otherwise specified.
Bull
- A merger of two successful strategies into one, with greater liquidity and economies of scale
- Remains at an attractive discount, with new ‘backstop’ measures in place
- European equities trade at a historically large discount to the US
Bear
- Investor sentiment to Europe remains weak, likely due to macro concerns
- Gearing can amplify losses as well as gains
- European equity funds continue to see outflows, albeit a reversal could be very positive for markets