Janus Henderson European Smaller Companies

The Janus Henderson European Smaller Companies fund is a pure small-cap vehicle which has a ‘style agnostic’ approach to investing. This means the managers will buy growth companies at a reasonable price as well as looking at neglected areas of the market. The managers are also willing to invest in the smallest of companies, allowing them to find a number of hidden gems that are often ignored by their peers. They will also target companies at different stages of their life cycle.

Our opinion

Backed by a large and experienced investment team, this is a true small-cap fund where the managers are happy to invest across the entire universe to deliver returns. Janus Henderson European Smaller Companies fund stands out from its peers in several ways – for example, although it invests in growth companies, it also has a valuation tilt, something which is uncommon in the small-cap space. The fund also targets companies at various points in the investment cycle – allowing the managers to diversify their revenue streams accordingly. With excellent long-term performance, we would consider this a core holding for small-cap purists.

Fund manager

Ollie Beckett is a portfolio manager of European equities at Janus Henderson Investors. He manages a number of products in this segment of the market, taking over the management of Janus Henderson European Smaller Companies in 2015. He joined Henderson as an assistant portfolio manager for European equities upon the firm’s merger with AMP Asset Management in 1998 and was named fund manager in 1999. He moved to the global technology team in 2000. Ollie left Henderson in 2003 to pursue other interests before returning to his current role with the firm in 2005.

Rory Stokes is also a portfolio analyst within the European equities team. Rory joined Henderson in 2013, prior to which he worked at Liberium Capital Limited in small and mid-cap equity sales from 2007. He has also held numerous roles at Credit Suisse.

We look for stocks where the fundamentals exceed the market perception and where we can see reasons for that to change. Fortunately European smaller companies is an arena awash with neglected companies quietly doing great things.

Ollie Beckett, Rory StokesFund manager

Investment process

The team starts by screening the investment universe for suitable companies to help rank them from best to worst in class. Idea generation also comes from meeting management and both internal and external research.

The process specifically sees the managers target four types of companies. These are: early cycle companies (rockets) – demonstrating growth, a clear strategy and operating leverage; quality growth – businesses with high returns on invested capital, top line growth, margin sustainability and barriers to entry; mature businesses – these are cash generative firms with steady returns on invested capital; and turnaround companies – these may have management looking at cost cutting, reasonable margins and asset disposals.

The team is seeking to understand the business model, assess whether the valuation is correct and find any mis-priced opportunities.

The portfolio construction stage will determine company position sizes with the team keen to diversify the portfolio as much as possible. The portfolio typically holds around 100 stocks, although this number can vary.

The fund does invest in both growth and value names giving it the flexibility should one style heavily outperform another for a period of time.

ESG

ESG - Integrated  

Janus Henderson has a specialist ESG team which focuses on integration, engagement, voting and reporting. The firm also has a risk function which includes ESG analysis of portfolios. The European Smaller Companies fund has ESG analysis integrated into all of its investment theses with regards to stock decisions. ESG is incorporated into company scoring and evaluation, with the underlying belief that companies that score well on ESG and sustainability warrant a valuation premium over time. The firm looks at what is/is not a fair premium for those assets, rather than excluding stocks on ESG ratings alone.

The firm splits the ESG moniker up within its process. Environmental and Social decisions are often made within the firms’ in-house Governance and Stewardship Team, as well as considering ESG risk reports. Governance is covered on desk as part of the management teams’ routine work and they regularly challenge the management of the companies they hold in this regard.

Risk

This is a true small-cap fund, with around half of the portfolio in stocks with a market-cap of less than €1bn. As a result, the fund has a lower average market-cap than its peers. Shares of small and medium-sized companies can be more volatile than shares of larger companies, and it may occasionally be difficult to value or to sell shares at desired times and prices, increasing the risk of losses. The fund may also use derivatives and hold assets in different currencies.

Janus Henderson European Smaller Companies fund invests in both growth and value names giving it flexibility should one style heavily outperform another for a period of time.

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