Henderson European Focus stock picking pays off – Henderson European Focus has published results for the 12 months ended 30 September 2021. It managed to beat its benchmark by 0.6%, returning 22.6% to the benchmark index’s 22.0%. A narrower discount meant that shareholders did a lot better though, with a return of 28.8%. The dividend has been increased by 5.8% to 33.1p and this was fully covered by earnings.
Tom O’Hara is going to take more of a role in promoting the fund going forward but he will still be co-managing it with John Bennett.
The power of the closed-end structure
There is a great statistic in the report – over 10 years, the fund has made 319.6% in share price terms and 282.7% in NAV terms. These numbers are ahead of its investment company peer group, which returned 270.0%, but way, way ahead of the average open-ended fund, which returned 198.8%, underperforming the benchmark index by 0.6%.
Extract from the managers’ report
“Reflective of the bottom-up nature of our investment process, our winners and losers of the year represent an eclectic bunch. Indeed, our top five ‘alpha’ contributors were Nordea Bank (banking), Signify (lights manufacturer), Interpump (diversified industrial products), ASML (semiconductor equipment) and Lundin Energy (oil exploration and production). Perhaps only ASML would be seen gracing the portfolios of most ‘growth’ strategies, the other four names most likely to be seen as ‘value’ counters. Indeed, if we stretch our analysis to look at the next five contributors, we find two autos stocks, one from food retail, one from building products and an insurer. Thus, only one name from our top ten ‘winners’ could be considered a ‘growth darling’: the redoubtable ASML.
At the other end of the table, one of our bigger disappointments was our holding in Holcim. While our biggest individual contributor, Nordea Bank, added 75 basis points (“bps”) to ‘alpha’, Holcim subtracted 58 bps. Representing 6.2% of the portfolio at the year end, this has undoubtedly been one of the most contrarian calls we have made in recent years. The contrarianism is all the more pointed – and all the more lonely – given that this is a cement company. As such, Holcim is an easily avoided stock if one employs the ‘scorecard’ approach to ESG investing. As investors in the Company will know from our commentary in last year’s Annual Report, we prefer a different approach. Indeed we are passionate about it. Our approach to ESG favours change. We don’t want to cancel; we want to embrace, challenge and hold to account, admittedly an approach not currently finding favour in many an educational establishment.
We ask ourselves not where a company has come from but where it is going. Holcim embodies this thought process: formerly a sprawling cement empire, it is in the hands of a highly talented, proven management team, determined to push through an ambitious transformation programme. The end game is a profile which can be described as ‘less cement, more downstream building products and solutions’. Successfully executed, this would, in our opinion, deliver a much less carbon intensive, higher returns-focused group. Meanwhile, Holcim is already a world leader in the decarbonisation of cement, a product which is not going away any time soon.
Our thesis is that the metamorphosis should be rewarded by a substantial rerating of the company’s shares. Having spoken regularly with Holcim’s management, we believe that the languishing stock price, notwithstanding the near flawless strategy execution thus far, will prompt an acceleration in the transformation. Indeed, we see 2022 as a pivotal year.
It is one thing having a thesis: it is another seeing it realised. The concern with Holcim has to be that today’s fashion for ESG scorecard investing runs longer than our patience can hold out. Never far away from our thoughts are our six ‘strands’ of Investment DNA. As outlined in last year’s Annual Report, the penultimate of those was stated as “Give yourself time (clients willing)”. Well, it has been some four years since we started building this position in Holcim. Whether it is we or our clients who lose patience first, all senses point to us having to make a decision whether to stick or fold in Holcim in the coming year: the final DNA strand – ‘be ready to be wrong’.”
HEFT : Henderson European Focus stock picking pays off