Henderson European Focus Trust (HEFT) announced its annual results for the year ended 30 September 2023. NAV total return was 24.1%, well ahead of the benchmark return of 3.6% and also outperforming the broader peer group average. Share price total return was 27.7%
Major contributors to the outperformance included semiconductor capital equipment stocks BE Semiconductor and ASM International, along with long-term holding Holcim and diabetes and obesity ‘category killer’ Novo Nordisk, which has now become Europe’s largest company by market capitalisation. Regarding the performance the managers do note the somewhat distorting effect of the period of measurement. The September end of financial year 2022 coincided, almost to the day, with the European market trough, following which we saw a sustained rally in almost everything through to spring 2023, with the previous laggards outperforming.
Two of the trusts bigger detractors – Shell and UPM – were less due to investments gone wrong (both stocks actually gained during financial year 2023), but courtesy of large position sizes that lagged the rapid recovery in the benchmark during 2023. It provides a good example of why the managers always encourage performance to be judged on at least three years. Even good investments can have a “bad” 12 months measured against a benchmark. UPM remains the largest overweight position, while the managers also retain a sizeable overweight exposure to oil and gas, which is viewed as strategically critical given the geopolitical backdrop. Energy also provides a useful tool in protecting shareholder capital against the inflationary effects of what will probably be more frequent commodity spikes. Oil and semiconductors, both held in size, offer a true economic barbell for the multipolar world.
Regarding the outlook, the managers added:
“We have illustrated why we believe Europe’s ‘makers’ and ‘doers’ will stand to benefit – and are benefitting already – from the profound growth in both publicly funded capital expenditure and the utilisation of enormous reserves of ‘dry powder’ sat on corporate balance sheets. This may, in part, explain the absence of the much-feared hard-landing, at least so far. But, even if it does not prevent a painful economic downturn, it serves as a reminder that economies are not binary, but always nuanced. There will always be attractive opportunities for businesses to pursue. There will always be areas of economic resilience. Thus, where there is nuance, there is opportunity for stockpickers. Whatever the macroeconomic backdrop, we want to be invested in the right companies, which are competing in the right places and – critically – at the right share price. Europe’s big, beautiful, global champions offer a compelling opportunity set.”
HEFT : Stock selection drives impressive outperformance for Henderson European Focus Trust