Over one, three and five years Henderson Eurotrust has beaten its benchmark, FTSE World Europe ex UK index, placing it among the top-three performing Europe investment trusts over longer periods. One of the other striking things about the investment trust is its current focus on only three countries, Germany, France and Switzerland, which account for nearly 80 per cent of Henderson Eurotrust's assets. Tim Stevenson, manager of this investment trust, maintains that his stock selection process is "bottom-up driven." Even with recent problems in Europe Mr Stevenson has continued to use the same investment approach he has consistently used over the years.
"We have always looked for good quality consistent stocks," he says. "We have no turnaround situations or bankrupt companies. However, when there is a dash for trash we lag because of our focus on good quality blue chips, although they continue to do steadily well."
As well as picking good quality stocks, Mr Stevenson tends to hold them for the longer-term. "The buy and hold idea really pays off if you can be patient," he says. "We have, for example, held Inditex since 2001, when it did its initial public offering at around €15 (£13.04) a share. If you get in at an early stage and stick with it you get great returns."
Today the company's share price is worth more than around €50 a share.
It is possible to get in early with a larger company because there are young growth companies that happen to be mid-caps. "For example, we have always identified Inditex as a young growth company - even now it is gong into new regions so has lots of growth potential," he adds.
The investment trust looks for large and medium-sized companies which are perceived to be undervalued in terms of their growth prospects or significant changes.
Healthy concentration
Mr Stevenson does not feel that the portfolio's concentration on three countries is an issue. "It is irrelevant where a company is listed, an international company like Nestle is as Swiss as I am! Logistics company Kuehne & Nagel meanwhile, (a top-10 holding which accounted for 2.4 per cent of assets at the end of January), is very much a global player, they just happen to be listed in Switzerland. Geographic weighting is not a big issue."
"We had discussed whether to turn Eurotrust into a Northern Europe trust as, for example, we have not held anything in Greece for years, but that would be limiting because there will be more opportunities in southern Europe eventually. When there is good visibility and good returns, we will invest."
The investment trust already has selected holdings in southern Europe with Spain accounting for 4.3 per cent of assets at the end of January. This comprises two companies, retailer Inditex which owns the Zara chain and IT company Amadeus, which specialises in transaction processing for travel and tourism companies globally.
"We hold these two stocks because of the nature of the companies," says Mr Stevenson. "Inditex, for example, is targeting Asian growth."
Reasons for selling a stock include a company declining in growth. "You have to be aware of the potential for growth to slow," says Mr Stevenson. "Or if a company is likely to have a pause in growth, even if this is temporary. We would also consider selling a stock if it is over valued, there is an adverse change or we are not comfortable with the economy."
Looking down
Mr Stevenson still takes into account some top-down influences when selecting stocks. An example of this is reinvestment in equipment during 2010, a theme that may continue through 2011. This was reflected via stocks such as Swedish-listed engineering group Sandvik, which focuses on materials technology, mining and construction, and truck and car manufacturer Volvo. Mr Stevenson says he needs to find more stocks exposed to this. "We were pleased when we bought back Sandvik as this is one of the best managed companies in Europe and the area of industry it operates in has consolidated," he adds. "My only regret is that we did not buy this and Volvo back earlier."
Mr Stevenson also wanted more mid-cap technology companies and added ones such as French smart card manufacturer Gemalto, now a top-10 holding accounting for 3.2 per cent of the fund.
The investment trust is also still very underweight financials, as was the case most of last year, with this sector accounting for just over 10 per cent of holdings at the end of January. "We have got to keep an eye on this because banks have problems, and pay their senior executives too much," says Mr Stevenson. "We are in no great rush to go back into this sector."
Exceptions include non-bank financials, such as top-10 holding Deutsche Borse which runs stock exchanges and accounts for 3 per cent of the fund's assets.
As regards British reservations with investment in continental Europe, he says: "Europe is mature, but so is the UK. The demographics, namely the aging population throw up investment opportunities in areas such as healthcare and outsourcing. Europe is not going to offer rampant, Asian-style growth but there are still numerous sources of growth on which I am optimistic. I have said consistently how irritating it is that in the UK we have this superiority complex where we think we can do everything better than the Europeans. The fact is, they do lots of things better than us."
| Tim Stevenson CV |
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Tim Stevenson has been manager of Henderson Eurotrust since 1994 and involved with its running since launch in 1992. He also manages the European allocation of two other Henderson investment trusts, Bankers Investment Trust and Law Debenture Corporation, and an offshore European fund. Mr Stevenson joined Henderson Global Investors in 1986 before which he worked for two years at Aetna Montagu Asset Management, where he also worked on European Investments. Mr Stevenson has a BA (Hons) in Economics and European Studies from Sussex University. |
