Are you an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor


Register for FundCalibre!

We just need to know
if you are an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor


23rd February 2015

add alt text

John Bennett, manager of the Elite Rated Henderson European Focus and Henderson European Selected Opportunities funds.

Do you currently consider Europe a better investment region than the US?

The US is seen as a safe haven and the “Big Daddy” market is looking a bit expensive. While Europe looks cheaper, it would be disingenuous to say it needs to mean revert because of the US. The European index has more troubled sectors than the US, even when financials are stripped out. We have more lumbering oil and utility firms, whereas in the US they have got more growth technology stocks.

It is the fact that we can find few clear bargains that keeps us thinking European equities have a better chance of being relative rather than absolute winners. European margins have more chance of getting off the floor than US margins have of hitting the moon.

How will European equities fare in 2015?

I think the bull market is starting to look stretched, and without a step-up in revenue growth leading to earnings growth, any rise in equity markets can only come from more expensive share prices as a ratio of corporate earnings i.e. higher P/E multiples.

In the near term, the European Central Bank is clearly seeking to underpin the Eurozone and we saw in 2012 that this can be very supportive. But equities were a lot cheaper back then and the cycle younger. I think 2015 could see a significant pick-up in volatility, so investors should brace themselves for difficult markets. That is why I think stock picking is so important. By understanding a company’s strengths and weaknesses, we can seek to be better positioned than the general market, both in good times and bad.

Against a backdrop of low economic growth, which sectors continue to be promising?

I aim for meaningful stock positions, and have quite strong themes running through my portfolios. It is why I like manufacturers of smart components for cars. The car industry is going through substantial change: technology is becoming a bigger feature of cars and safety regulation, and fuel efficiency requirements are creating investment opportunities.

In today’s market, if you stand still you are dead. You need to be constantly innovating. That’s why I still like healthcare as a sector. Although valuations are not cheap, they are bringing new products to the market every year. They are also relatively defensive. If there is a downturn, we can all delay buying a new TV but expenditure on health tends to go up year in year out, particularly as the world’s population ages.

Something interesting is also going on with telecoms. The regulators are more friendly now and this could be a game changer. During the past 10 years the telecoms sector was all about the consumer and the next 10 it could be all about capital return.

Looking ahead, what are the major headwinds for the eurozone?

The euro is finally giving some oxygen to companies and it needs to remain weak. The biggest macro trade out there is buy dollar and sell the euro and God help Europe if that reverses.

I see a great fault line in emerging market bonds where the oil price fall could rupture certain emerging market economies and force them to devalue their currencies, which could in turn impact the euro. The entrance for money that has gone in searching for yield was wide but the exit is narrow. You have also got a situation where ETFs are trading against each other.

Europe remains the global whipping boy: the economy is in a mess, politicians are dysfunctional (a global problem) and there are fault lines in financial markets. I prefer to focus on the micro, identifying attractive sector and stock-specific opportunities, rather than geopolitical events we cannot influence and which may, or may not, be a factor.