Henderson European Focus Trust 27 January 2020
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
To maximise total returns from a focused portfolio of listed stocks, mainly in continental Europe
Henderson European Focus
Janus Henderson Investors Ltd
Association of Investment Companies (AIC) Sector
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
Henderson European Focus Trust aims to offer investors attractive total returns through a highly concentrated portfolio of European companies.
The portfolio is comprised of just 45 stocks, with the top ten making up close to 40% of the total NAV. The manager, John Bennett, utilises a bottom-up approach to portfolio selection, looking for high-quality companies with strong balance sheets and cash-flow potential. However, he still places a high level of importance on the price, and won’t overpay to include a company in the portfolio.
The trust has a strong track record relative to the benchmark (the FTSE World Europe ex UK), having outperformed in eight of the past ten years. The trust has also outperformed its AIC peer group in seven of these years. Performance has been equally impressive in recent times, with the trust generating NAV total returns of 24.8% over 2019. In comparison, its AIC Europe and IA Europe peers generated NAV total returns of 22.6% and 20.4% respectively while the benchmark returned 20.4%.
Despite the strong recent performance, the trust continues to trade at a double-digit discount (10.1%). This is the second-widest discount in the eight-strong AIC Europe sector, where the weighted average discount sits at 7.2%.
HEFT has an impressive and consistent long-term track record for outperformance of the benchmark and peer group. However, the manager and board have recognised that they are coming under increasing pressure from passive vehicles which track the European index at considerably cheaper fees. As such, a key topic of discussion between the manager and board has been on how to further differentiate the portfolio. At the AGM in January 2020, investors will be asked to approve a policy which will allow the manager to hold 35–45 stocks, down from 45–60. Furthermore, shareholders are also being asked to approve an increase of 40% to 50% to the limit for stocks weighted at 5% or more of the portfolio.
We particularly like managers that have conviction in their investments, and these changes will give John greater scope to demonstrate his stock-picking skills and ensure greater differentiation from European indices and peers. These adjustments are also the only ones that can be successfully achieved in a closed-ended fund, without the worries of subscriptions or redemptions should the trust or sector go out of fashion.
|Increasingly active approach has the potential to generate high returns
||Increase in concentration mixed with gearing means potentially higher volatility
|Long-term track record of outperformance of the benchmark and its peers
|Attractive discount relative to the peer group