A debate is currently taking place about whether cheap valuations make European stocks attractive, after ongoing issues with high sovereign debt, a questionable currency union and low growth are taken into account. Stevenson has managed the Henderson Euro Trust since its launch in January 1992 and has seen varying market conditions in this time. His tip for investing in Europe at the moment is to focus on good company fundamentals and leave macro concerns to others.
"What I try to do is focus on really good-quality companies that have good earnings growth and can pay us some sort of dividend," he said.
"I take a long term strategy when it comes to investing, with a concentration on quality and not what is currently fashionable. That means that the portfolio turnover rate tends to be quite low."
"In my view, over the long-term a good company now will still be a good company further down the line. We are aware of the environment we are in and so I don’t see much point jumping in and out of cyclicals and trying to time the market."
"Investors just need to be patient and stick with a quality company’s potential," he added.
Data from FE Analytics suggests this approach has worked for Stevenson and his investors.
Our data only goes back to January 1995, however according to FE Analytics the Henderson Euro Trust has returned 1,002.02 per cent in share price terms since then, beating its benchmark – the FTSE World Europe ex UK index – by more than 600 percentage points.
Performance of fund vs index since Jan 1995
Source: FE Analytics
This means that if an investor had bought £1,000 worth of shares in the fund at launch, they would now have more than £11,000.
The Henderson Euro Trust has also been one of the three best-performing portfolios in the IT Europe sector over one, three, five and 10 years and has comfortably beaten the index over each of these timeframes.
One of the key parts of Stevenson’s approach is being unfazed by valuations.
The manager says that although it may seem dangerous buying an expensive stock, if it has strong fundamentals and characteristics, then it is a better long-term investment than buying a cheaper company that has inconsistent earnings.
"I’ve got a greater degree of patience than others when it comes to valuations," Stevenson said.
"Take the French company Essilor, which makes lenses for glasses. It is a very innovative company with good growth in the emerging markets. When people get older they need to have their lenses modified, so this is a super consistent company with steady growth."
"However, like with any good company like that, you have to pay for that quality as it is currently trading on something like 24x earnings."
"It is all about being patient with these sorts of companies and more importantly that my shareholders remain patient, as a company like Essilor could seemingly move sideways for a long period of time," he added.
Stevenson says that a focus on quality is vitally important when investing in Europe.
He adds that the unpredictability of headwinds means investors should not follow momentum and should instead stick with the best stocks available – an approach that protected his trust during the financial crash of 2008.
Although his closed-ended fund still lost just over 5 per cent that year, it was the best performer in the sector and fared considerably better than its benchmark, which lost a hefty 23.99 per cent over the 12-month period.
Performance of trust vs sector and index in 2008
Source: FE Analytics
"That was very much because of our concentration on top-quality companies – as some even had positive earnings growth that year – and having next to nothing in banks," Stevenson explained.
"I remember writing in my annual report at the time that the reason I was very light on banks was because I didn’t understand how they made their money. And as it turned out, I was in good company as it seems the bank’s management teams didn’t either," he added.
Stevenson says that investing has certainly changed during his 20-year run managing the closed-ended fund, in both negative and positive ways.
"It is a tricky one as each crisis is always slightly different, I think," he said.
"One thing for sure is that the market is so much more aggressive in the short-term. I need to be careful what I say but a lot of this comes down to these specialist hedge funds that jump from one opportunity to another."
"As we have seen, those results have been very mixed but because of that, the market’s attention span is much shorter than it has been in the past."
"Saying that, another thing that has changed is that the quality of European companies keeps getting better and better so it goes back to the adage that we are investing in companies and not economies," he added.
Stevenson runs a fairly concentrated portfolio of 52 holdings, with European mega caps such as Deutsche Post, Novartis and Roche Holdings all featuring in his trust’s top-10. The manager’s largest regional exposures are to Switzerland and Germany.
The trust has a yield of 2.23 per cent and is trading on a 4.73 per cent discount to its NAV. However, that is more expensive compared with its one and three year average.
Henderson Euro Trust is 9 per cent geared and has ongoing charges of 1.16 per cent. It also has a performance fee.
