Watershed year revives Henderson

Henderson Global Investors landed on firmer ground after “an up-and-down time” in the past few years. Its market share in the core British retail sectors grew 500% in 2007, writes Adam Lewis.

The last time Fund Strategy profiled Henderson Global Investors (February 19, 2007) the group had made several changes in an effort to boost performance. According to Kate O’Neill, director of European distribution at Henderson, despite a challenging time for all concerned, these changes led to a “watershed year” for the group.

Morningstar lists 40 open-ended funds managed by Henderson. Of these, 22 are ranked either first or second quartile in their peer groups over 12 months. Of the 31 funds with a three-year track record, 15 were ranked in the top half of their sectors. However, O’Neill says that of the 40 funds listed by Morningstar only 26 funds are retail Oeics, including four socially responsible investments (SRI) funds.

O’Neill joined Henderson in 2001 from AMP, its former parent, in Australia. She took on the role of director of European distribution at the end of 2006 on the departure of Phil Jefferson as head of UK retail, when the roles for British and continental European retail distribution were combined.

She says: “Given market conditions, last year was a challenging one for all concerned, namely funds, fund management groups and advisers. However, after we rejigged our brand and refocused our sales efforts our growth in market share rose considerably. Gross sales of our funds in the two core UK retail sectors, UK All Companies and UK Other Bond, grew 500% in market share in 2007. This for us is an indication that things are beginning to come together.”

O’Neill says that for British retail investors there are three main franchises at Henderson, each of which celebrates an anniversary this year. The first is its bond funds, of which the Henderson Preference & Bond fund turns 30 this year. The other main retail fixed-income offering is the Strategic Bond fund. Both are managed by John Pattullo.”2008 is a very important year for the Strategic Bond fund,” says O’Neill. “Some call it the growth & income bond fund as John takes in considerable macro views and then allocates the fund’s assets between investment grade and high yield in both the UK and Europe. It was his good calls last year on high yield and central banks that led the fund to do well [versus the peer group].”

According to Morningstar, over the past 12 months the fund ranked second quartile in the IMA UK Other Bond sector, despite posting a negative return of 2.94%. Over three years the fund is first quartile, returning a positive 9.55%.

Darius McDermott, managing director of Chelsea Financial Services, says it has the Strategic Bond fund on both its buy lists, Chelsea Leaders and the Premier League. He says: “We prefer the strategic bond-type funds because we think clients are bad at switching between investment grade and high yield at different times during cycles. At present John’s is our preferred fund. He has good solid performance and called the market well last year. He is a safe pair of hands.”

Henderson’s second main retail offering is its UK Equity Income fund, and 2008 marks the third anniversary of James Henderson assuming control of the £409m portfolio.

A year ago the UK Equity Income fund was ranked first quartile over both one and three years. Morningstar now ranks it third quartile over one year and second quartile over three years. O’Neill says that performance suffered in the fourth quarter of the year, though she adds that this weakness hurt several funds in the peer group.

“The important thing is that, like all funds, James continues to stick to his style and convictions,” she says. “Managers don’t chop and change their funds just to suit market conditions. They will only change if they are getting things consistently wrong.”

An example is the Henderson Global Tech fund. About a year ago several groups decided to either shut down or merge away their technology offerings but Henderson did not. The fund is now ranked first quartile over one and three years and is £250m in size.

O’Neill says that when Andrew Formica was brought in as head of equities shortly before the group demerged from AMP in December 2003, he took view that the only product that mattered was investment performance. With this in mind significant hirings were made, with Graham Kitchen and Andy Jones joining in 2005 from Threadneedle and Invesco Perpetual respectively. They co-manage the UK Equity and UK Growth & Income funds.

Gary Potter, fund of funds manager at Thames River, says that while there are no Henderson funds in any of his portfolios, the group has improved. “In the past the business has had its issues but things are gradually coming together,” he says. “There are a number of good managers there, in particular Graham Kitchen, Chris Reilly [manager of the Asia Pacific Property Equity Sicav] and Stephen Peak [manager of the TR European Growth investment trust].”

Potter says the most important thing is that there is now stability at the group, and O’Neill notes that the average tenure of a manager at Henderson is seven to eight years, compared with the industry average of three.

Henderson’s third main franchise for British retail investors is multi-manager funds. This year marks the third anniversary of Bill McQuaker joining the group from Credit Suisse First Boston (CSFB) to head the three fund of funds offerings, Henderson Independent Income & Growth, Distribution and Growth.

O’Neill says that assets under management in the three funds now total about £200m. “Bill was a quant analyst at CSFB and this background has really helped the funds,” she adds.

In terms of the rest of its fund offering, O’Neill describes Henderson as a “collection of boutiques”. She says the European team is independent of the Asian team, which is independent of the global team, and so on. “There is no one house view.”

Indeed, the group’s Sicav funds, the Horizon range, run absolute return fixed income, American equities, property equities, pan-European equities (large and small cap) and pan-Asian equities and specialist funds. These offerings are aimed at continental European investors and those British advisers comfortable with offshore funds.

For 30 years the group has also managed socially responsible investment mandates, which now total £1.1 billion of assets under management.

Assets in the Horizon funds total £8 billion, against £4 billion in the Oeic. The third major leg in Henderson’s offering is investment trusts, which is where started in 1934. The 11 funds in this range are worth £3.5 billion.

O’Neill says that 70% of the group’s revenue now comes from these higher-margin funds, the other 30% coming from its lower-margin institutional and sub-advisory funds.

Chelsea’s McDermott says: “Henderson has had an up-and-down time over the last couple of years but it now appears to be doing better. Kate O’Neill has made changes and these are starting to bear out. Three or four years ago we had none of their funds on our buy list, we simply avoided them. That is no longer the case.”

HENDERSON GLOBAL INVESTORS offers a range of investment products and services to institutional and retail investors in Asia, Europe and North America. It manages more than £61.30 billion in assets and employs about 900 people worldwide. It offers 12 investment trusts and 22 Oeics to the British retail market, alongside its multi-manager range of independent portfolios and four socially responsible investment Oeics.

The best and worst funds for each group profiled in the Focus are now shown on a relative rather than absolute basis. Previously, the best and worst funds have been defined in absolute terms. But the percentile ranking of a group’s funds are now shown relative to their respective sectors.