Mark Dampier: Europe is a happy hunting ground for Henderson fund
Friday 18 January 2013
Wider economic concerns dominated news flow during 2012. The eurozone crisis, a slowing Chinese economy and the prospect of tax rises and spending cuts in the US were the subject of many column inches. Some investors were wrong-footed in believing the worst of every outcome. Last year proved better for stock markets than most imagined.
I am not so complacent as to believe the world's economic and financial problems are resolved. The euro hasn't failed but peripheral economies remain debt-laden and uncompetitive. Chinese economic growth remains strong by Western standards but the road towards rebalancing from exports to domestic-led growth remains long and fraught with difficulty. The problems in the US have merely been kicked down the road.
Nevertheless, the events of 2012 show that the most uncomfortable investment decisions are often the most fruitful. At the end of 2011, Europe was almost completely written off. Private investors were selling their European funds in droves, but it turned out to be a good year. The FTSE World Europe Ex-UK Index rose 18 per cent, while the average fund in the IMA Europe Ex-UK sector was up 19 per cent.
The European sector is home to many experienced and successful fund managers. John Bennett is one. He took over the Henderson European Selected Opportunities Fund from Roger Guy, another respected fund manager, in February 2010. It was a strong act to follow, but I don't think he has disappointed.
The fund predominantly invests in large companies. Many fund managers struggle in this area as large companies are so well-researched it is difficult to have an edge over competitors. To outperform, you need to be aware of the benchmark's composition but not driven by it, according to Mr Bennett. This means he will take meaningful diversions and not just hold 5 per cent of a stock because it represents 5 per cent of the benchmark. The performance of the fund is therefore likely to differ significantly from the benchmark, especially over shorter periods.
Mr Bennett is a believer in mean reversion (the theory that prices or returns move back towards their historical average over the long term). Therefore, bad companies will not be forever bad and good companies struggle from time to time. He believes the way to achieve outperformance is initially to make sector calls rather than focusing purely on stocks. Presently, he has an overweight position in the healthcare sector, which represents about 25 per cent of the portfolio.
Pharmaceutical stocks peaked around the same time as the technology bubble, and have effectively de-rated ever since. Investors' concerns have included the patent cliff (whereby patents on blockbuster drugs expire, opening them up to competition), President Obama's healthcare reforms in the US, and the Western austerity drive putting downward pressure on prices.
Mr Bennett doesn't believe that the headlines tell the full story. Investors are extrapolating and assuming these problems will run indefinitely. They are well-documented though and probably factored into share prices already. He is focusing on the wider changes taking place in the European healthcare industry. Regulatory burdens are easing with new vaccines and medicines being approved for sale. He is also focusing on companies where improved management quality is having an impact, with key holdings including Novartis, Roche and Sanofi.
In contrast, the telecommunications sector remains popular with investors, but Mr Bennett has no exposure. Profits have been affected by increasing use of free services on internet-enabled phones, which are replacing previously profitable services such as SMS. He believes this trend has further to go, and sees falling cash flow and unsustainable yields across the sector
Overall Mr Bennett believes that European stock-market valuations look attractive on a cyclically adjusted basis. With uncertainly still surrounding the global economy, further stock-market volatility cannot be ruled out. However, for investors with a five-year-plus time horizon, current valuations could present a good entry point.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Apple has been hit by complaints about the 1.1GB download
Much-loved cartoon character returns - without Sir David Jason
Liam Neeson's Downton dreams
Matt Smith is set to join cast of the Jane Austen classic - with a twist
Actress to appear in second series of the hugely popular crime drama
- 1 Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
- 2 Scottish independence: Learn from Quebec's mistakes and beware of promises. Vote Yes.
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Revealed after 75 years of secrecy: 'Fifi' the glamorous WW2 special agent who tested British spies' resolve
- 5 Have you heard about the film Singapore has banned its people from watching? Well, you have now
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony