henderson horizon euroland fund review geographic diversification source: ... • luxury goods ......

Nick Sheridan

Henderson Horizon

Euroland Fund review

This document is solely for the use of professionals and is not for general public distribution.

The value of an investment and the income from it can fall as well as rise and you may not get back

the amount originally invested.

March 2016

1

Henderson Pan European Equity team

Dealing, Operations and Marketing Support

Eleanor Cameron Richard Brown

Analysts/Assistant Managers

Nick Kissack Asim Rahman Robert Schramm-Fuchs Bill Casey Rory Stokes

Large cap Mid cap Small cap

Growth Agnostic Value

Tim Stevenson

€6.8bn

John Bennett

€13.5bn

Nick Sheridan

€1.9bn

Simon Rowe

€1.4bn

Ollie Beckett

€1.7bn

Source: Henderson Global Investors, as at December 2015

2

Henderson Pan European Equity team

Deep-Value Core-Value Core Core-Growth High-Growth

Gia

nt

Larg

e

Mid

S

ma

ll

Mic

ro

John Bennett

Large cap core, Agnostic

Tim Stevenson

Quality growth

Nick Sheridan

Value

Simon Rowe

Mid cap

Ollie Beckett

Small Cap

Ben Wallace

Luke Newman

UK ARF

LONG SHORT

John Bennett

European Equity long short

Source: Morningstar, as at 30 June 2015

Performance

4

90

110

130

150

170

190

210

230

No

v-1

1

Ma

r-1

2

Jul-1

2

No

v-1

2

Ma

r-1

3

Jul-1

3

No

v-1

3

Ma

r-1

4

Jul-1

4

No

v-1

4

Ma

r-1

5

Jul-1

5

No

v-1

5

Henderson Horizon Euroland A2

MSCI EMU NR EUR

GIFS OE Eurozone Large-Cap Equity

Henderson Horizon Euroland Fund

Source: Henderson Global Investors, Morningstar, as at 29 February 2016

Bid-to bid, gross income reinvested, net of fees, in Euro, for the A share class, close of business pricing

Note: Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund

The left chart is rebased to 100 as at 8 November 2011, at which time the Fund changed its name to Euroland and has a new objective, benchmark and Fund Manager.

Performance since fund manager change

versus peers, November 2011 to 29 February 2016 Performance since fund manager change

percentage growth, November 2011 to 29 February 2016

94%

+50%

+54%

Index %

0

10

20

30

40

50

60

70

80

90

100

10 15 20 25 30

Cum

ula

tive r

etu

rn

Volatility (standard deviation)

5


Performance

0

2

4

6

8

10

YTD 1 year 2 years 3 years Since FM change 5 years

%

Relative performance

% YTD 1 year 2 years 3 years Since FM change 5 years

Fund -7.4 -4.7 4.8 15.2 16.6 13.1

Benchmark -9.2 -13.4 0.8 7.9 10.6 4.8

Percentile 13 5 9 1 1 1

Source: Henderson Global Investors, Morningstar, as at 29 February 2016

Note: As at 8 November 2011, the Fund changed its name to Euroland and also changed its objective, benchmark and fund manager. The Benchmark changed from the FTSE

W Eur ex UK to MSCI EMU. Performance is based on bid pricing, gross of fees, in Euro, annualised returns, A2 Acc share class, close of business pricing.

Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund


The Fund

7

Typical parameters

Number of holdings 40-50

Position size 1-5%

Sector average weights +/- 15%

Country average weights +/- 15%

Introduction to the Henderson Horizon Euroland Fund

• Value-biased stockpicking

• All Cap euro equities

• Focused portfolio with industry

and geographic diversification

Source: Henderson Global Investors

8


Fund MSCI EMU Index Notes

Dividend yield forecast 3.51% 3.76% Around the market

P/E forecast 13.64x 13.92x Cheaper than the market

ROE 19.1x 12.9x Better return than the market

Net margin 10.4% 9.4% Higher than the market

Beta 0.94

Active stance 71.8%

Forecast tracking error 4.0%

Current fund characteristics

Source: Henderson Global Investors, Barra Style Research, as at 29 February 2016

Note: Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund

9

Source: Henderson Global Investors, as at 29 February 2016

Fund is the Henderson Horizon Euroland Fund and index is the MSCI EMU NR Index

Note: Sector weightings are inclusive of cash


Sector and regional breakdowns

Country % of

Fund

% of

Index

Active

weight

Netherlands 17.4 8.2 9.2

Finland 8.2 3.3 4.8

United Kingdom 4.4 2.0 2.3

Ireland 3.5 1.7 1.8

Denmark 1.2 0.0 1.2

France 32.3 32.5 -0.2

Austria 0.0 0.6 -0.6

Italy 6.2 7.1 -0.8

Spain 4.4 10.1 -5.7

Germany 22.0 29.0 -7.0

Sector % of

Fund

% of

Index

Active

weight

Consumer Discretionary 22.1 15.1 7.0

Industrials 20.2 13.7 6.5

Information Technology 8.6 7.1 1.5

Energy 4.5 5.1 -0.6

Health Care 7.4 8.3 -0.9

Financials 18.6 20.8 -2.2

Telecommunication

Services 2.7 5.3 -2.6

Consumer Staples 9.2 11.8 -2.6

Materials 4.3 7.2 -2.9

Utilities 2.1 5.6 -3.5

10

The basic premise of investing

Buying stocks priced below their

intrinsic value

11

Investment process

Earnings

Use of earnings allows us

to ascertain the sustainable

earnings power of a company

Most

value Earnings

Use of earnings allows us

to ascertain the sustainable

earnings power of a company

Value

of growth

Growth adds value when

it is larger than the required cost

of capital, but it can destroy

value when cost of capital are

higher than the growth

Dividends

An attractive well-covered

yield increases the certainty

of an investor’s return

Net

Asset Value

This is the most certain

of all valuations, but will

need to be adjusted to

reflect economic reality

Stock screen used to establish investment value

12

Investment process

Investment

universe

~400 stocks

Value screen

Portfolio

construction

and risk

management

~40-50 stocks

Screen results

Top stocks go

forward

Validation

Asset value valuation

Earnings power

valuation

Implied growth

valuation

Quartile Number

of stocks

1 100

2 100

3 100

4 100

Value

of growth

Earnings

Dividends

Net Asset

Value

An overview

13

Investment process

1) How much would it cost to reproduce these assets?

2) How are the assets financed?

3) Could the assets be worth more if broken up or sold?

4) Does the company have any unrecognised assets?

5) Is competition decreasing?

6) Any catalyst for a value realisation event?

1) How stable are these earnings?

2) Are the earnings defensible?

3) How are the earnings utilised, distributed or retained?

4) Is the distribution policy sustainable?

5) Are the earnings backed by cash?

1) How is growth financed and what is the cost?

2) Is growth sustainable?

3) How much is this growth worth?

4) Is competition increasing?

De

gre

e o

f v

alu

ati

on

ri

sk

Implied growth valuation

Earnings power valuation

Asset value valuation

Validation – based on solid foundations

Value stock examples

15

Christian Dior an example of asset value

Share price 15/01/2016 €146

Market cap at 15/01/2016 €26.2bn

Sales June 16E €37,936m

PE (x) June 16E 14.67x

Dividend yield (%) June 16E 2.46%

Source: Bloomberg, FactSet, prices as at 15 January 2016

Business

• Luxury goods

• Christian Dior Couture: > €1.75bn sales

• 40.93% stake in LVMH – value: approx €28.6bn

Management

• Experienced management team

• Long-term shareholder – Group Arnault (72.86%)

Financials

• Couture ~15%+ annualised revenue growth over

last five years

• Property and treasury shares worth approx €700m

• Market cap of €26.2bn at approx 20%+ discount

to sum of parts (LVMH stake + property + Dior

Couture)

Initial

purchase

Source: Bloomberg, Factset, data as at 15 January 2016

The above example is intended for illustrative purposes only and is not indicative of the historical or future performance of the strategy. Henderson Global Investors, one of

its affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to individual securities should not constitute or form

part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not indicative of future results.

16

Renault an example of asset value

Share price at 15/01/2016 €75.13

Market cap at15/01/2016 €21.6bn

Sales Dec 15E €44,733m

PE (x) Dec 15E 7.16x

Dividend yield (%) Dec 15E 3.20%


Business

• International car manufacturer

• Stock stands at a small (~ 12%) premium to value

of associate stakes (Nissan 43% €17bn, Daimler

3.07% €2.3bn)

Management

• Experienced management team

Financials

• Equity priced below asset value implies no

economic value will ever be added (0.81 x

book value)

• Product cycle now looks supportive for

volume growth

• Negatively impacted by Volkswagen diesel

scandal





Initial

purchase

17

RELX (Reed Elsevier) an example of earnings power and growth

Share price at 15/01/2016 €14.42

Market cap at 15/01/2016 €15.53bn

Sales Dec 15E €8,290 m

PER (x) Dec 15E 17.67x

Dividend yield (%) Dec 15E 2.76%


Business

• Professional publishing and information business,

with strong positions in health, legal, risk,

exhibition and corporate

• Recurring sales and subscription model give

resilience to the business

Management

• Under long-term incentive plan senior

management are required to own significant

stakes in the company (multiples of annual salary)

• Management strengthened over recent periods

Financials

• High margin, high return on equity characteristics

• Significant barriers to entry, client relationships,

back catalogue, must-have nature of the product

• Approaching top of capital expenditure cycle,

market discounting little revenue growth –

reversion to the mean suggests otherwise





Initial

purchase

Where is Europe?

19

QE in Europe splits opinion

Source: Henderson Global Investors, as at 29 February 2016

* Draghi December 2015 press conference

LTRO = Long Term Refinancing Operation

1,000

1,500

2,000

2,500

3,000

3,500

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

LTRO 1&2 QE starts

Expansion since March 2015

= €615bn, €68bn per month

QE due to end in “March 2017 or beyond if necessary”* which would result in €1.2 trillion

further stimulus at current run rate

But: Andreas Uterman (Allianz) “If QE doesn't stop, western democracies in trouble”

ECB total assets (Euro bn)

20

-1

0

1

2

3

4

5

Fe

b-0

0

Aug

-00

Fe

b-0

1

Aug

-01

Fe

b-0

2

Aug

-02

Fe

b-0

3

Aug

-03

Fe

b-0

4

Aug

-04

Fe

b-0

5

Aug

-05

Fe

b-0

6

Aug

-06

Fe

b-0

7

Aug

-07

Fe

b-0

8

Aug

-08

Fe

b-0

9

Aug

-09

Fe

b-1

0

Aug

-10

Fe

b-1

1

Aug

-11

Fe

b-1

2

Aug

-12

Fe

b-1

3

Aug

-13

Fe

b-1

4

Aug

-14

Fe

b-1

5

Aug

-15

Fe

b-1

6

Headline - Euro Area Inflation (YoY%)

Core - Euro Area Inflation (YoY%)

Deflation?

Euro area inflation (YoY %)

Source: Bloomberg, as at 29 February 2016

Includes flash estimates for February 2016

-0.2%

0.7%

21

Eurozone GDP forecasts – slow growth

Consensus forecasts for GDP growth (YoY, %)


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

No

v-1

1

Ja

n-1

2

Ma

r-12

Ma

y-1

2

Ju

l-1

2

Sep

-12

No

v-1

2

Ja

n-1

3

Ma

r-13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Ja

n-1

4

Ma

r-14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Ja

n-1

6

2016

2015

2013

2014

22

Currency – will help earnings

Euro versus USD

Source: Datastream, as at 29 February 2016

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.00

1.10

1.20

1.30

1.40

1.50

1.60

Dec-0

4

Ma

y-0

5

Oct-

05

Ma

r-06

Aug

-06

Ja

n-0

7

Ju

n-0

7

Nov-0

7

Apr-

08

Sep

-08

Feb-0

9

Ju

l-0

9

Dec-0

9

Ma

y-1

0

Oct-

10

Ma

r-11

Aug

-11

Ja

n-1

2

Ju

n-1

2

No

v-1

2

Apr-

13

Sep

-13

Feb-1

4

Ju

l-1

4

Dec-1

4

Ma

y-1

5

Oct-

15

Exch

an

ge

rate

Exch

an

ge

rate

Average

2013 = 1.33

Average 2014

= 1.33

Average

2015 = 1.11

23

Oil – deflationary but good for consumers and corporates

20

40

60

80

100

120

140

Ja

n-0

9

Apr-

09

Ju

l-0

9

Oct-

09

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5

Oct-

15

Ja

n-1

6

Price

pe

r b

arr

el $


Oil price – Crude Oil – West Texas Intermediate

$34

24

PMIs pointing to slow expansion

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Eurozone

Germany

Italy

France

UK

Spain

Manufacturing PMIs


Includes flash estimates for February 2016

25

Improving Bank lending supports earnings recovery in Europe

Source: State Street Global Markets, Bloomberg, Thomson Datastream: Asset Allocation Monthly, January 2016

European valuations?

27

Europe PE rating?

Source: MSCI, Global Financial data, Morgan Stanley Research, as at 26 February 2016

MSCI Europe – Price to earnings (latest = 16.4)

28

What does Schiller say?

Current Shiller PE (x) LT Median Disc, %

Italy 11.9 25.5 -53%

Portugal 8.5 14.1 -40%

Spain 11.6 19.0 -39%

Japan 25.6 41.2 -38%

Eurozone 13.5 20.5 -34%

France 16.4 22.7 -28%

UK 13.1 18.1 -27%

World 20.9 23.3 -10%

Germany 18.2 19.8 -8%

Switzerland 21.9 21.4 2%

US 24.7 22.8 8%

Source: J.P. Morgan, as at 5 January 2016

29

Bonds vs dividend yields

The scarcity of income

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Eu

rop

ea

n d

iv y

ield

US

div

yie

ld

AA

A €

co

rp b

on

d y

ield

BB

B €

co

rp b

on

d y

ield

Ge

rman

10

y B

und

US

10yr

bo

nd

yie

ld

Ge

rman

3m

FIB

OR

US

3m

ra

tes

Current (%) 30-year average (%)

Equity dividend yield relative to other asset classes


Equities Corporate bonds Government bonds Money markets %

30

European Equity Yield relative to Govt Bonds

Source: MSCI, Global Financial data, Morgan Stanley Research, as at 26 February 2016

Bps

(Latest = 308bp)

31

The future?

Source: Soc Gen, Lapthorne – November 2015 & SG European Equity Strategy 2016

32

M&A – it’s happening

-30 20 70 120 170

$1bn to $5bn

$5bn to $10bn

>$10bn

Deal number

0%

5%

10%

15%

20%

25%

0.0

0.5

1.0

1.5

2.0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Volume ($ trillions LHS)

Percentage of European equity market

0 100 200 300 400 500 600

$1bn to $5bn

$5bn to $10bn

>$10bn

Deal volume ($bn)

Source: Henderson Global Investors, Bloomberg, as at 31 December 2015

Note: European M&A volumes

Deal value and deal number refer to 2015 in Western Europe

Percentage of European equity market = $ M&A volume divided by $ market value of MSCI Europe

M&A volume

Deal number

Deal volume ($bn)

33

Earnings growth – forecast

European earnings growth (YoY %)

Source: Henderson Global Investors, Goldman Sachs research, Citi group research, as at 31 January 2016

Red bars represent forecasts

0.7

-4.1

-10.7 -13.8

-4.2

47.0

11.7

20.7 21.9

3.4

33.2

23.9

-35.1

-22.9

54.0

31.2 29.6

17.6

6.0

-32.1

-6.1

39.4

-2.1 -5.0 -4.3

1.4

-1.0

6.7 11.8

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

34

European earnings growth forecasts

34.6

17.1 17.1 15.1 12.0 9.4 7.8

6.2 4.8 4.6 4.5 3.0

-1.0 -1.9 -3.4 -3.4

-12.0

-42.2

-54.3

19.5

7.3 6.6

11.3 16.4

9.8 9.1 5.2 4.7 3.2

6.8 4.2

7.7

-1.2

11.8

19.9

5.4

-20.2 -20.4

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Tra

ve

l &

Leis

ure

Ban

ks

Me

dia

Techn

olo

gy

Auto

mo

bile

s &

Pa

rts

Pers

on

al &

House

hold

Goo

ds

Real E

sta

te

Ind

ustr

ial G

oo

ds

& S

erv

ice

s

Fin

ancia

l S

erv

ices

Insu

ran

ce

Chem

icals

Tele

com

s

He

alth

Ca

re

Utilit

ies

Reta

il

Co

nstr

uctio

n&

Mate

ria

ls

Food

& B

evera

ge

Oil

& G

as

Basic

Reso

urc

es

Ea

rnin

gs g

row

th %

2015

2016

2015 forecast at the start of the year

Source: Citi Research, consensus estimates, as at 31 January 2016

The above data is on the Citigroup Pan European index

35

Outlook

• Low growth world is creating new challenges for world markets

• Monetary policy likely to remain very stimulative in Europe while Fed has started to

tighten very gently

• Main risks/surprises in 2016 • $ weakness

• H2 inflation increase

• Possible further terrorist activity

• China – political and economic stress mount sharply

• US and European economies grow ahead of expectations

• Brexit

• Equity valuations remain better than bonds

• Economic growth in Europe should be supportive of Euro stocks

36

Henderson Global Investors

201 Bishopsgate, London EC2M 3AE

Tel: 020 7818 1818 Fax: 020 7818 1819

The Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. This document is intended solely for

the use of professionals and is not for general public distribution. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus

(including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s

prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson

Global Investors Limited in its capacity as Investment Manager and Distributor.

Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355) (incorporated and

registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE and authorised and regulated by the Financial Conduct Authority) provide

investment products and services. Telephone calls may be recorded and monitored.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of

units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend

upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them

directly as charges, performance and terms and conditions may differ materially.

The securities included in this document are not registered in the Foreign Securities Registry of the Superintendencia de Valores y Seguros for public offering and, therefore, the

use of this document is only for general information purposes.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any

contract for the sale or purchase of any investment.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or

most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United

Kingdom Financial Services Compensation Scheme.

A copy of the Fund’s prospectus, key investor information document, articles of incorporation, annual and semi-annual reports can be obtained free of cost from the local offices of

Henderson Global Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Agnello 8, 20121, Milan, Italy, for Italian investors and

Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark

9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095

Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6

Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 6 Battery Road, #12-01

Singapore 049909; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road,

Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong. Ref: 36J

G:\Dist\G\BS\Pres\Equ\Euro\Horizon Euroland Fund (Continental European)\2016\01. Jan\HEUZEI_SAL02_M_31012016+INTERNAL.pptx

henderson horizon euroland fund review geographic diversification source: ... • luxury goods ......

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