- Trust outperforms by 3% in first half
- European markets up nearly 15%
- Discount to NAV remains around 10%
Co-managers of the Henderson European Focus Trust (HEFT), Tom O’Hara and John Bennett, conceded that it was more important to ‘stay out of trouble’ over the six months to the end of March as the FTSE World Europe (ex UK) index powered ahead by 14.9% on a total return basis.
The trust delivered a 3% outperformance against the benchmark due to owning most of the names which went up more than the market average and avoiding the ones which did not. The managers say the period was characterised by narrow leadership which has also been a feature of the US stock market led by ‘Big Tech’.
Five of the largest names in the benchmark, all owned by the trust, went up by more than 30% over the period, while three of the top 10 in the index underperformed and none of these were represented in the portfolio.
WHAT WORKED AND WHAT DIDN’T
Top contributors to performance included Nestle (NESN:SWX), one of the names which underperformed the index and is not owned, aircraft engine maker Safran (SAF:EPA) and picks and shovels AI (artificial intelligence) play BE Semiconductor (BESI:AMS).
On the other side of the performance ledger were pulp and paper maker UPM Kymmene (UPM:HEL), oil company Aker BP (ARC:FRA) and healthcare company Grifols GRF:BME) which has been sold. Most of the detractors came from cyclically-sensitive parts of the market.
Looking ahead, the managers say they maintain a conviction in the long-term prospects of their ‘Global Champions’ comprising semiconductor equipment, construction materials, aerospace, industrials and other sectors.
New positions include Finish elevator heavyweight KONE (KNEBV:HEL), which the team believes is exiting an eight-year-long headwind inflicted by the normalisation of its ‘once-stellar’ China-derived profits.
German defence manufacturer Rheinmetall (RHM:ETR) was added to gain further exposure to the military pillar of the ‘Capex Supercycle’. Food catering company Compass Group (CPG) entered the portfolio based on a view that growth prospects are accelerating in its European and US businesses as hospitals and universities struggle with food and labour inflation.
Shares in the trust dropped 1% to 188.3p representing a discount to net asset value of 10% while the discount averaged 11.8% over the period, which the board described as ‘disappointing’.
The board declared a half year dividend of 3.05p per share.
COMBINATION TO BRING SCALE BENEFITS
The company is pinning its hopes on the discount narrowing following the upcoming combination with stablemate Henderson Eurotrust (HNE) which will be voted on at each company's respective annual general meetings in June and July.
The combination will create a company with around £680 million of assets making it a larger, more liquid and more cost-effective vehicle which the board expects will be eligible for inclusion in the FTSE 250 index.
LEARN MORE ABOUT HENDERSON EUROPEAN FOCUS
