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Janus Henderson’s Beckett: Why I’ve had such a “rubbish” year

21 November 2018

The manager of the TR European Growth trust said he has been a fool for selling out of the sector’s best performers far too soon.

By Anthony Luzio,

Editor, FE Trustnet Magazine

Janus Henderson’s Ollie Beckett has blamed poor stockpicking and a misreading of the macro situation for the dire performance of TR European Growth over the past year.

The entire IT European Smaller Companies sector has struggled over the past 12 months, falling 11.74 per cent, but the trust has fared even worse, with losses of 25.29 per cent.

Performance of trust vs sector and index over 1yr

Source: FE Analytics

Beckett said there was no point in trying to sugar-coat these figures.

“Look, we’ve had a rubbish year,” he said. “We can try and dress it up as something else, but it’s been rubbish. Predominantly because of poor stock selection, but we’ve also been wrongly positioned from a top-down perspective.”


The manager (pictured) said there were two ways in which he got his positioning wrong. To begin with he jumped the gun in terms of switching from a growth to value style of investing, pointing out he used to own many of this year’s best-performing stocks in Europe.

For example, he sold out of Nemetschek, which provides software to the construction industry, when it was trading at 40x earnings, but he said it has now climbed to 70x earnings at 6 per cent earnings growth. Similarly, he described Carl Zeiss Meditec, which makes lasers for eye surgery, as a brilliant company, but said it is growing nowhere near fast enough to justify trading at 52x earnings.

“So I’m a fool in some ways because I sold all these things too early,” he continued. “Thematic investing led 2018 up to the end of September. We thought that had become absurd but we were wrong.

“What we’ve done is remain valuation-aware. To stay sane in my mind, I have to think that cash-flows count and asset values count. But I promise you this is not a value fund – I can give you some examples of where we are trying to buy the winners of tomorrow, high-growth companies, but we just thought valuations have become slightly absurd.”

Despite switching from growth to value too soon, the trust still underperformed its sector and benchmark during the October correction. Beckett said this is related to the second way in which he got his positioning wrong: focusing on small caps. Two-thirds of the portfolio is in companies with a market cap of less than £1bn, which have underperformed mid and large caps.

“Going back to October, unfortunately there has been no buyer in small caps,” Beckett added. “So, yes, maybe we are starting to get that value argument right, but there just hasn’t been that margin buyer. We have been hurt by having that lower market capitalisation.

“Now in fairness, if you go back the last few years it’s helped us, so I guess it is a differentiating factor if anything. But throughout 2018, small cap has massively underperformed.

“We have companies with a £100m market cap. I saw one called Singulus, it has this machinery for something called thin film which is solar technology. It is doing unbelievably well, winning lots and lots of orders in China, the company is growing rapidly, but it’s a £100m market cap and nobody cares.”

In terms of poor stockpicking, one of the major detractors from performance has been Italian clothes retailer OVS. Beckett said it attempted a “foolish” expansion into Switzerland in a tie-up with a “pretty desperate” brand which subsequently went into administration, leaving it with a large inventory that it subsequently had to write down. This, along with corporate governance concerns, led him to sell out of the company.

The manager is more optimistic about the turnaround prospects for two of his other poor performers, the first of which is Finnish housebuilder Lehto.

“Lehto is a leader in modular housing,” Beckett continued. “But, unfortunately, the CEO Mr Lehto decided it should go in to the renovation market, where it proceeded to lose quite a lot of money, whereas in the newbuilds, it makes unbelievably good margins for a housebuilder.

“So it has now stopped doing that. Hopefully it will turn this around because the company is still growing at the mid-teens rate, but it has disappointed the market, so it goes back to the whole earnings momentum, because it got its strategy wrong.”

He said the second stock, Wallenius Wilhelmson, has been penalised for having “the worst job title you could ever have wished to have this year”.

“Wallenius Wilhelmson has a series of ferries which predominantly transport cars from Asia to Europe,” the manager continued. “If you throw in trade wars and problems around cars, particularly around Germany with emissions standards and the issues around diesel, it’s more gone down because of what it says it does, its ‘name on the tin’.

“It struggled a bit with bunker fuel in Q1, but again it is over-sold. It also transports agricultural, mining and industrial equipment, which is picking up.”


Even after the trust’s poor performance in 2018, it is still up by 131.01 per cent since Beckett joined in July 2011, compared with 121.71 per cent from its sector and 84.1 per cent from its EMIX Smaller European Companies benchmark.

Performance of trust vs sector and index under manager tenure

Source: FE Analytics

Beckett said some sort of economic stabilisation is required for the trust to outperform again in the short term, adding: “I think people from now on will be more valuation-aware and then I think we are sitting in a pretty good place. Because if you were to look at the metrics on the trust, we have a P/E [price-to-earnings ratio] of less than 12 on the underlying portfolio and I don’t remember us ever having a P/E that low. I don’t ever remember us having a forecast dividend yield on our portfolio of 3.6 per cent.

“It’s an illustration that I think there is a lot of value. But let’s be honest here, smaller companies are geared to global growth, so I can’t sit here and tell you that owning TR European Growth is the place to be if you think we are heading into a recession.”

TR European Growth is on a discount of 11.07 per cent compared with 7.23 and 9.81 per cent from its one- and three-year averages. It has ongoing charges of 0.71 per cent and is 9 per cent geared.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.