Jamie Ross, Portfolio Manager of Henderson EuroTrust, delivers an update on the Trust highlighting the key drivers of performance, factors affecting the market, and outlines recent portfolio activity over the last month.

March was another difficult month for performance. Conditions remain difficult for our strategy; we are and remain a quality growth-biased strategy and this has not helped us in this environment. In addition, where we own cheaper companies, they tend to have some degree of cyclicality (Banks, Autos) rather than being defensive in nature; this has also not helped. This month, it was our more cyclical holdings that suffered. In particular, holdings in Kion (warehouse automation), Faurecia (auto parts) and Unicredit (Italian bank) underperformed. Our stronger performing positions in March were concentrated amongst our pharma businesses (Novo Nordisk, Roche) and our defensive consumer-facing businesses (Sig Combibloc, Beiersdorf).

We are using this difficult environment for quality growth as an opportunity to move further towards this style bias; simply put, we are finding opportunities to buy what we see as high-quality long-term investments at reasonable valuations. This month, we initiated three new positions in EDPR (the Portuguese renewable energy company), Deutsche Boerse (the German exchange) and UMG (the music content business). We see all three as high-quality businesses with defensive and well-protected earnings streams, and we are excited to have been able to buy positions at reasonable multiples. To free up capital for these new investments, we sold our holdings in Iveco (trucks), SKF (ball bearings), Faurecia (auto parts), Sinch (communications services as a platform) and Nexi (payments). The first three are lower quality holdings that we see as challenged in a high energy cost, low economic growth environment. The latter two are long duration growth stocks; we see this high inflation environment as a significant obstacle for the valuation of these businesses.

We will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.

Glossary Expand

Cyclical – Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.

Defensive stock – A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle.

Growth investing – Growth investors search for companies they believe have strong growth potential. Their earnings are expected to grow at an above-average rate compared to the rest of the market, and therefore there is an expectation that their share prices will increase in value.

Price multiple – A price multiple is any ratio that uses the share price of a company in conjunction with some specific per-share financial metric for a snapshot on valuation. The share price is typically divided by a chosen per-share metric to form a ratio. Price multiples enable investors to evaluate the market value of a company’s stock in relation to a fundamental metric, such as earnings, cash flow, or book value.