Tim Stevenson, the manager of the £128m Henderson Eurotrust, is preparing to use gearing when the market turns. At present he looks for companies that can perform well in a low growth environment.
The trust, which was launched in 1992, published its annual results. They showed a 4.35% decline in value over one year to July 31, compared with a 7.6% fall in its benchmark, the FTSE World Europe ex UK index.
Stevenson says his cautious stance helped the trust over the past year. However, he says gearing was not used as much as he would have liked when markets were rallying before the global economic slowdown and credit crisis unfolded.
“At some stage these markets are going to rally again,” says Stevenson. “Gearing will come into play [then]. We didn’t have gearing in the rising market. We should have been geared, but now is not the time to introduce it.
“I don’t think we’re necessarily near the bottom yet,” he continues. “But when we feel there’s more certainty, there’s no reason we can’t be 20% geared.”
The backbone of what Stevenson looks for in companies is “good quality long-term growth” opportunities. Themes on which he is focusing include infrastructure projects that are essential as opposed to optional, for example.
“Transport or power infrastructure are integral to economic growth,” he says. “It’s a theme that will be more resilient compared to some of the other opportunities out there.” Another theme Stevenson is looking at is growth in savings.
“There are lots of very young growth companies out there in Europe,” he says. “We are looking for companies that are in the early stages of that. We are looking for companies that can do well in a low steady growth environment.”
Stevenson adds that bad days in markets provide great value opportunities for the trust.
Over one and three years the Henderson Eurotrust is ranked first and second out of 12 and nine trusts respectively, in the Association of Investment Companies Europe sector, according to Morningstar. Over three years to October 20, the trust produced a return of 0.67%, compared with a sector average fall of 7.49%.