Results analysis: Henderson European Focus Trust

• Henderson European Focus’s (HEFT’s) NAV and share price total return for the year to 30/09/2023 were 24.1% and 27.7% respectively, outperforming the benchmark, the FTSE World Europe ex UK, which produced a total return of 20.5%. The equivalent NAV total return figure for the AIC Europe peer group was 20.0%. The trust has also outperformed its benchmark over three, five, seven and ten years and in the analysis below we highlight the performance since 2010.
• Performance in 2023 was driven by semiconductor stocks BE Semiconductor and ASM International, along with long-term holding Holcim and pharmaceutical company Novo Nordisk, which has now become Europe’s largest company by market capitalisation. Detractors included insurer ASR Nederland, oil major Shell, AkerBP and Finnish pulp and paper manufacturer UPM Kymmene. The position in banks has been entirely sold, as has the position in utilities.
• Total dividends for the year were 4.35 pence per share (2022: 4.35p). At the closing share price on 12/12/2023 of 167p this represents a yield of 2.6%.
• HEFT currently trades at a c. 13% discount, starting the financial year at c. 14%. The current discount is slightly wider than the five-year average of c. 11%, and wider than the AIC Europe peer group average of c. 9%. During the year, the board repurchased a small number of shares, highlighting that it is prepared to use buybacks should the discount become excessive, while believing that performance and wider investor sentiment are the primary long-term drivers of the discount.
• HEFT’s management team made dynamic use of gearing over the year, taking gearing up to 11% in March and, following strong performance, reducing it to a current small net cash position, as noted in the chair’s comment below. HEFT’s gearing comes from low-cost long-term debt in secured early 2022 with an average interest cost of 1.57%.
• During the year, co-manager John Bennett, who has managed HEFT since 2010, announced he would retire in August 2024. Co-manager Tom O’Hara has worked on HEFT since 2020 and the manager and board anticipate no change to the process and philosophy of the trust.
• Chair Vicky Hastings said: “With US bond yields not far off the levels last seen in the Global Financial Crisis, geopolitical risks that have continued to rise and the very real threat of recessionary forces, it is not a surprise that your fund managers are erring on the side of caution and, for the first time that I can remember, investing in UK gilts (albeit for the very short term) to de-gear the company. However, for active stockpickers (as opposed to index huggers or passive funds), when markets get volatile and uncertainty increases, opportunities arise, and good investment returns can accrue for the medium to longer term. Indeed, this is the environment we now face and which your fund managers are embracing. Meetings with the underlying company management teams continue and, for some, the future is very bright. Your board remains confident in your fund managers’ ability to uncover these opportunities and for the company to continue to prove a good long-term investment for its shareholders.”

As the board notes, manager John Bennett, who took on the role in 2010, has delivered strong outperformance over that time, which is highlighted in the chart below. The same chart illustrates that European equities can be very fertile ground for active management given the large number and diversity of companies to choose from...

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