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.
Since Jamie took charge of the Portfolio he has focussed on integrating a thorough, objective and repeatable investment process and has increased the overall concentration of the portfolio. As a result, HNE has had increased allocations to the communications and technology sectors. As we discuss under Performance, these changes led to HNE being exceptionally resilient during COVID-19, outperforming the market in all phases of the market gyrations. The NAV total return over the 12 months to 30/09/2020 has been 13.3%, compared to 0.4% for the benchmark.
HNE ranks amongst the most ESG-compliant trusts within the entire investment trust universe (as determined by Morningstar). A significant part of the process has always been a dedicated assessment of governance and sustainability, which has resulted in a very ESG-compliant portfolio. The manager’s general thesis is that quality and sustainability tend to go hand in hand and that, all else being equal, those companies which care about ESG are more likely to perform well as financial investments.
While HNE’s objective is total return, it has a solid track record of dividend growth with a compounded growth rate of 12.4% between 2015 and 2019. However, its most recent full-year dividend of 25p for the year to July 2020 represents a cut from last year’s dividend, reflecting a change in dividend policy.
Henderson EuroTrust continues to deliver outperformance, with Jamie Ross extending his predecessor’s strong record. COVID-19 has clearly provided a baptism of fire, but HNE’s performance during this period shows Jamie is able to keep his head whilst others are losing theirs.
Europe has not been kind to its investors, between Brexit, stalling growth and a pandemic. Jamie has made a number of changes to the trust, improving the objectivity of analysis, with the result that the portfolio has shifted towards the communications and technology sectors. As a result, HNE has beaten the market handily during the COVID crisis, with a calendar-year-to-date NAV total return of 9.9% versus -0.5% for the benchmark (Source: The AIC, as at 30/09/2020). The trust also has strong ESG credentials, ranking amongst the top of the wider trust universe on Morningstar’s metrics – a result of Jamie’s bias towards quality governance and environmental sustainability.
Despite strong relative performance, HNE continues to trade at a relatively wide discount – currently 9.3% – which is wider than its long-term average and its peer group. In the annual report published recently, the chairman takes the view that sentiment against Europe by UK investors and lack of liquidity are the ultimate reasons for the relatively wide discount. We continue to believe that there is potential for a re-rating as Jamie proves his capacity to be a high-quality, active manager, and the current discount is an attractive entry point.
|Resilience during COVID-19||May miss out on a cyclical recovery if/when COVID-19 is resolved|
|Wider-than-average discount continues to offer a good entry point||Factors influencing the discount may persist into the medium term|
|Increasingly objective (and thus reliable) investment process||May be buying into 'quality growth' at inflated valuations due to COVID-19|