Henderson EuroTrust (HNE) invests in a portfolio of European-domiciled companies, seeking to generate the maximum possible total return over the medium to long term. Jamie Ross took over from previous manager Tim Stevenson (who had been at the helm for over 25 years) in early 2019.
Jamie made a number of substantial changes to HNE’s portfolio in early November, having grown concerned around the stretched valuations of a number of ‘COVID-19 beneficiaries’ within the portfolio. His views on a post-vaccine recovery, combined with HNE’s priority scoring framework highlighting the valuation risks, led Jamie to sell out of a number of the expensive COVID-19 ‘beneficiaries’ and rotate into names which could benefit from the recovery.
This was the third such re-positioning during 2020, with the trust now having generated a 12-month NAV performance of 21.4%, nearly three times its benchmark’s 7.6% return, and nearly twice that of the peer group’s 11.5% NAV return. Since the start of his tenure in February 2019, Jamie has consistently outperformed his benchmark, providing investors with high alpha and a low beta of 0.7. This performance is not only evidence of Jamie’s ability as a manager, but the effectiveness of his investment process, which at its core remains unchanged under the new management.
HNE continues to trade at a discount, currently 8.4%. Though it has shown signs of narrowing recently, it still trades in line with the long-term average, and wider than the average discount of the peer group.
In our view, Jamie’s navigation of the market during COVID-19 has been very impressive. Jamie’s recent changes to the portfolio ultimately reflect both his skill as a manager and his commitment to his investment process. This is evidenced not only by the returns and performance metrics HNE has generated over the last 6 months, but also performance in prior phases of the pandemic. HNE occupies an interesting place in the European sector, with the manager’s demonstrable willingness to have feet in both growth, and value camps – which potentially offers investors a useful core exposure relative to peers.
As a result of HNE’s performance, the discount at which it trades seems incongrous. While Jamie does not have the long track record many investors demand of a manager, his recent performance has surpassed many of his longer-tenured peers. Jamie has demonstrated his ability to generate returns through rapidly changing circumstances thanks to the ‘trial by fire’ he has faced over the last two years, and leaves us optimistic that he can continue to generate significant alpha.
That said, the change in dividend policy, no longer a progressive pay-out, may be unpalatable to income-seeking investors. Likewise, the short-term changes to the portfolio may have impacted HNE’s ESG credentials slightly – although Jamie does remain committed to sustainability as a theme. However, for total return-seeking investors, in our view, HNE offers one of the most promising strategies in the European sector.
|Strong track record of outperformance versus peers and benchmark
||“Vaccine” trade may move against HNE if Europe is forced into a prolonged lockdown
|Successfully executed COVID-19 vaccine trade, evidenced by increased alpha since then
||Recent trades have impacted HNE’s ESG score
|Discount to NAV has remained wide relative to trust’s long-term history
||Dividend is no longer progressive