In this video, John Bennett, Director of European Equities at Janus Henderson, looks back at the first half of 2019, and considers his expectations for the performance of European equities for the remainder of the year. He also addresses why, in the ‘growth vs value’ story, he prefers to follow a more ‘blended’ approach to stock selection.

How closely has 2019 so far aligned with your expectations?

We definitely have not seen global GDP recession [as many expected]. There are wobbles, and concerns about China, but even the profits recession hasn’t been widespread. I thought you’d start to see problems in Q1, especially in industrial areas. Q2, I think you are beginning to see it. A stock that has been a bit of a darling stock, that we don’t own, called Hexagon. It’s quite China related, a capital goods business. It has just warned. That’s what I was talking about in December. I thought we were going to see a bit of that in the industrials sphere.

Do you expect growth/momentum strategies to continue to do well?

I wish I had been a growth stock manager in Europe for the last 12 years and I’d just held 25 expensive stocks that just got ever-more expensive. I don’t know when that game changes; I don’t know when the growth / momentum thing rolls over. I have always been a bit of a blend manager. I don’t like bank stocks at 30x earnings, believing that they’ll expand to 40x and 50x. Once you get into that exalted, rarified atmosphere, you can’t afford an error, as a stock. For the last 10-12 years, I should have abandoned that valuation consciousness and bought growth at any price.

It will end. I don’t quite see the catalyst to it ending – maybe some more disappointments from growth darlings. That might be it, but I don’t want to call the end to it. On the other side of it, why would you run to ‘deep value’? So much deep value is cheap for a reason. It is in run-off. Maybe I am occupying a bit of the middle ground. We do have our growth stocks, but we have a whole lot of idiosyncratic value in the portfolio: self-help. That’s where I get quite excited in Europe – self-help.

Where are the key European opportunities and risks for the remainder of 2019?

It is always a mug’s game – forecasting. My working assumption remains that if the lead market holds – and that is the S&P500 – it sets the tone. If the richly valued S&P500 holds, then the bid that European equities have recently caught will be a stronger bid. In other words, we’ve got more to go on the upside.

Two caveats. US equities have to hold, because it is the lead market. Second: China needs to hold. If China were to really get ugly, into trouble – a proper recession – quite a lot of European businesses, good parts of the index, are exposed to that delta. That’s a caveat.

I’m excited by the opportunity set in European equities. I’m not worried about valuations, apart from very popular growth stocks. My worry about Europe is US equities and Chinese demand. That’s what I worry about. If they hold, Europe is going higher.