Henderson’s Beckett ditches European large caps
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Ollie Beckett, the newly installed manager of the TR European Growth Trust, managed by Henderson’s, has refocused his portfolio by selling all large caps and concentrating on western Europe.
Beckett (pictured) officially took over the £272.4m investment trust from Stephen Peak last Friday. Within days, Beckett has sold all shares in companies with a market capitalisation of less than €5 billion (£4.5 billion). At the end of last year, this share was 12% of the total portfolio.
Among the largest holdings he sold were Volkswagen, HeidelbergCement, Fresenius Medical Care and Continental.
Although those four companies are all German, Beckett says 25% of his portfolio are still invested in Germany, which makes it the biggest country allocation.
Over the coming months, Beckett aims to build a core portfolio, 65-70% of the total portfolio, in companies that deliver high return on capital, structural growth and have pricing power.
Tomra Systems, a Norwegian company that produces, sells and operates reverse vending machines, fits his criteria. Beckett says it is a global leader, generates cash and is adapting its products to be used in other industries, such as food, pharmaceuticals and mining.
“Those are the [kind of] companies we like and are trying to reintroduce into the portfolio,” he adds.
Another recent addition of his is Carl Zeiss Meditec, a medical technology company, and Ferragamo, an Italian luxury group, which recently went public.
“There will be less focus on exploration and production, which Stephen [Peak] used to like,” Beckett says. “The core will definitely be mature markets of western Europe, although I might move into Poland over time.”
Most of his companies have a market capitalisation of between €50m and €3 billion.
“It was always a European small cap investment trust but in the last year or two, it had drifted away from that,” Beckett says. “The hard discount control mechanism was part of that problem.”
Peak had needed larger companies, which are typically easier to sell, for liquidity reasons. Up until November last year, the trust had a hard discount control mechanism to keep the discount at which its shares traded at 2%.
The trust had to frequently buy back shares and needed liquidity for share purchases.
Beckett says if the trust had not had this strict approach to controlling, it would have been twice as big now.
“With hindsight, the hard discount control mechanism has not achieved its purpose,” Beckett says. The trust now has a soft discount control mechanism to manage the discount, which is currently 17.52%, according to FE Trustnet.
Beckett says rather than concentrating on the discount, the trust needs to improve performance. According to FE Trustnet, the TR European Growth Trust returned 11.3% over three years, compared with a 36.3% gain in the HSBC Smaller Euro (ex UK) TR Index.
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