Results analysis from Kepler Trust Intelligence

Henderson European Focus Trust PLC

25 May 2023

 

Henderson European Focus Trust (HEFT)

25/05/2023

Results analysis from Kepler Trust Intelligence

·    Over the six months to 31/03/2023, Henderson European Focus Trust (HEFT) produced a NAV and share price total return of 22.8% and 28.3% respectively. The AIC Europe peer group on average produced equivalent figures of 22.3% and 25.7%, and the benchmark's total return was 21.7%.

·    Net gearing rose from 1.9% to end the period at 6.8%, leaving the Managers with some cash remaining from the long-term gearing facility to take advantage of further opportunities.

·    The interim dividend has been increased to 1.3p from 1.2p for the same time last year, with the shares going ex-dividend on 1 June 2023. HEFT's dividend yield is c.2.7%.

Kepler View

As the Henderson European Focus Trust (HEFT) chair notes, European equities outperforming US equities seemed almost unthinkable a year ago, with significant capital flows out of Europe and into the traditional safe haven of the US. but the propensity for equities to return to long-term average valuations, or 'mean reversion', is something at the front of Fund Managers Tom O'Hara and John Bennett's minds at the moment, and European equities reached an extreme valuation discount to US equities in the last quarter of 2022. Patient investors have since been rewarded with a strong recovery and outperformance which is perhaps the beginning of that mean reversion process.

Tom and John believe the next ten years are unlikely to be a repeat of the last ten years, and as investors lick their wounds and try to learn the lessons of another banking crisis and take stock of a world where factors such as low-cost borrowings and globalisation don't seem like they will be back any time soon, their approach seems well suited to a changing environment. What's just as important as their long-term strategic view is their flexible approach that can adapt as the evidence changes. One of the things the team believes will help performance in the coming years is a focus on companies that 'make stuff', which is in sharp contrast to the asset-light model that stock markets have favoured for the last ten years..

Overall we view HEFT as a core European equity trust, with a long and short-term track record of adapting to different market cycles, and of identifying long-term investment themes before they become mainstream. We think an attractive discount of c.12%, and yield of 2.7%, potentially makes for a good long-term entry point.

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