Bennett: How I revamped Henderson Euro Focus

Henderson’s John Bennett has overhauled the Henderson European Focus trust, introducing more risk into the portfolio through active bets against the benchmark.

The investment trust was formerly managed by Gartmore hedge fund star Roger Guy and had assets under management of about £400m. Bennett took over the portfolio a year ago, and the AUM has since fallen to £100m, leading the board to seek ways to revamp the trust.    

Bennett has cut holdings by 50% and moved to a more concentrated portfolio, taking adventurous sector bets against the index – the FTSE World Europe ex UK.
“The trust had to change in order to survive otherwise it would have been eaten up by arbitrageurs,” he said.

“We have moved to take more active sector positions against the benchmark in order to differentiate ourselves from other passive strategies in the market – albeit at the expense of greater volatility.”

“One of the virtues of being closed-ended is we can move quickly in and out of stocks to adopt a concentrated approach, which is a lot harder to achieve in an OEIC as managers are constrained to hold stocks for a longer period due to subscriptions and redemptions.” 

The more concentrated portfolio now places greater emphasis on total returns over capital growth.

Bennett is running underweight positions in financials, utilities and telecommunications, believing all three areas offer little value. 

The manager took out index futures to bet against the three sectors in Q4 last year.
“In effect I was betting 33% against the index because I do not find any of the sectors attractive. They all have too much leverage,” said Bennett.
He has no exposure to European banks as he expects the next decade to be a bear market for the sector.

“Banks are on life support from the European Central Bank, which will ultimately decide if they will be allowed to survive,” said Bennett.

“I believe European banks could trade like Japanese banks over the next decade and enjoy the odd rally in the market when higher quality stocks are sold down, but ultimately be stuck in a bear market.”

Bennett’s largest sector position is the healthcare and pharmaceuticals sector, running a 10.5% overweight. He believes the sector’s low P/E ratios have transformed it into more of an aggressive than defensive play.