Suits investors looking for long-term capital growth from well-known and interesting European brands. Many of the companies held in the portfolio are well known in the UK, such as Nestlé and Heineken, but are not always easy to invest in directly.
The company aims to achieve a superior total return from a portfolio of high quality European investments. Henderson EuroTrust plc invests predominantly in large and medium-sized companies which are perceived to be undervalued in view of their growth prospects or on account of significant changes in management or structure.
October was a good month for European markets, in spite of a largely disappointing series of third quarter results. The month saw the US flirt with default after the rather unseemly sight of a shutdown of the US government due to disagreements between Democrats and Republicans over how to manage the deficit. The solution is a postponement of the debate, perhaps in the hope that by next February better growth will be boosting tax revenues enough to compensate. All this has successfully diverted attention away from European economies, where the actual economic situation continues to show signs of improvement.
As the markets climb the 'wall of worry', ratings in Europe are towards the higher end of recent history, but a better earnings growth outlook and confidence in economies has been enough to encourage domestic and international investors to continue to build their weight in European equities. There is clear evidence that investors are (in our view correctly) favouring equities over bonds. Any setback (which would be entirely healthy after such a strong run) is likely to be met by further buying.
Although gearing is now at zero we remain fully invested. It has been a difficult month with quite a number of warnings across a number of sectors – in particular consumer staples such as LVMH and Unilever where we have no exposure. Whereas the market is prepared to take disappointments in some cyclicals in its stride, the same cannot be said for staples where valuations have been toward their peaks. We have maintained an underweight exposure to staples, and have been cautious on cyclicals due to slow demand recovery and intense price competition. Financials have also been mixed, with regulators slowly ratcheting up critical ratios (most recently by the Swiss regulator).
We expect the markets to remain buoyant more due to inflows of new money than any dramatic news on the corporate or economic front. While we acknowledge that growth is clearly returning in Europe, there are still quite a few matters to worry about over the next six months, and we will therefore continue to concentrate on quality and genuine recovery investments where available.