The Analyst: In Europe you must find the right manager to drive funds
Friday 22 March 2013
It is rare for the longevity of a fund manager to present a limitation to investors’ returns. Take Tim Stevenson, the manager of Henderson EuroTrust plc, who has been at the helm of the fund for more than 20 years. Under his stewardship, investors will have found little reason to complain as Mr Stevenson boasts an impressive long-term performance record. Indeed, under his tenure, the investment trust has returned a remarkable 1,400 per cent since its launch in 1992.
Over such prolonged periods, fund managers will inevitably face a variety of challenges. For many, the current battle is Europe whose problems are rarely out of the headlines. As I write, attention has turned to Cyprus as unassuming deposit holders risk losing a percentage of their savings in order to bail out the country and remedy the mistakes of politicians and bankers.
Worryingly, if such a precedent is set, a similar call to action could spread to other southern Mediterranean countries. It is hardly a deal for putting some faith back into the banking system.
Prior to the Cypriots creating headlines, the Italian election came to the fore, triggering another setback. According to Mr Stevenson, there needs to be a change in tack from Germany in terms of its demands. In the meantime, while further setbacks arise, he will not be cutting the fund’s level of gearing as he expects such setbacks to be relatively short term. In other words, he is in “buy-into-weakness” mode.
While private investors have tended to shun Europe, the trust now stands at a 8 per cent discount to net asset value. In some respects, it comes as a surprise this spread is not wider given the extent of the Europe’s problems. Though, as I point out – not for the first time – the European economy and its stock market are not one and the same. For one thing, European companies have proved particularly successful in acting as a gateway to the world. Famous names such as BMW have a global footprint, and their overseas operations dwarf their domestic business. Many of these companies are still expanding outside their domestic markets and European companies are among the principal beneficiaries of growing wealth in emerging markets.
From an economic viewpoint, we should expect low growth for years to come. Mr Stevenson’s aim “is to invest in companies that are part of the solution” and he seeks companies with real potential for growth. At present, his largest holding is in Deutsche Post, the courier firm, which continues to benefit from the growth of internet shopping in addition to increasing exposure to Asian consumers.
It is also an example of how a company’s domicile is relatively immaterial in comparison to revenues generated outside Europe. This is something many private investors miss completely. The trust also has holdings in financial companies such as Zurich Life and UBS, where Mr Stevenson has noticed a significant increase in private savings.
Software company, SAP, has also boosted performance. Only a few years ago, it was trading at a discount to arch-rival Oracle, but now trades at a significant premium to it.
Having recently met Mr Stevenson, he was keen to point out the strong, well-resourced European team based at Henderson. The team includes a number of well-known names in the industry such as Richard Pease and John Bennett. While the trust is very much his own fund, with the freedom to invest as he wishes, having such analytical input is a fantastic resource.
Henderson EuroTrust plc is a mid-cap orientated portfolio of top-quality companies, concentrated with only 55 holdings. With an emphasis on quality, increased investor risk appetite could leave the fund lagging its peers, which it has done so over recent months. I would argue that quality always comes through in the end and, therefore, this is the type of fund investors should be looking to buy and hold for the long term.
In my view, the trust’s only downfall is its performance fee. However, it is noticeable the boards of many investment trusts are reconsidering their fee structure as more competition breaks out. I would prefer a more conventional annual management charge which aligns the fund manager and the investor alike. Nevertheless, in my opinion, this is a quality offering ran by an experienced fund manager with the backing of a superb team.
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
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