The Henderson HF Pan-European Smaller Companies Fund is also a relative newcomer to the Forsyth Part...
The Henderson HF Pan-European Smaller Companies Fund is also a relative newcomer to the Forsyth Partners Fund Ratings Service, gaining its A rating in May of this year. Although manager Stephen Alder only took over as sole manager in April 2004, he has been co-managing the fund since early 2003 and has been with Henderson since 1998. Therefore we feel that he has the ability to deliver significant value added and have, accordingly, added the fund to this year's red hot selection.
The manager is positive that small-cap earnings growth will continue to outstrip large cap-growth in 2005, that the ungeared P/E multiple average for small caps is still at a 5% discount to large caps and, lastly, that there are still attractive opportunities to be found as small caps offer greater scope for alpha generation. He points out that valuations remain cheap, balance sheet are generally in good shape, cashflows remain decent and companies are taking a sensible approach to M&A. He notes that balance sheet repair and aggressive cost management is feeding through into better corporate results and also that strong cashflow yields and an improving dividend outlook provide solid valuation support. He could see further bids for small caps from here, as large companies that are awash take out their smaller rivals to increase their pricing power.
The fund seeks to achieve capital growth by investing at least two-thirds of its assets in the smallest 25% of European companies by market cap. The manager has a pragmatic but growth-oriented investment approach that aims to outperform in all market conditions. The investment style combines sector and theme selection with thorough bottom-up company analysis. The premise is that economic forces drive markets and the resultant business cycle will generate the themes that transcend the portfolio. There will often also be one or two long-term themes in the portfolio such as restructuring plays and niche companies. Despite this top-down framework, portfolio construction is driven primarily by stock selection with little consideration paid to the index.
Stock picking involves the rigorous analysis of companies within the chosen themes to determine their potential to deliver the best returns. At the same time a key factor is companies' growth prospects. Stock selection will be dynamic in an aim to make all stock picks count. The manager's main aims are to buy growth at a very reasonable price, to discover the undiscovered and back his best ideas as strongly as possible. The portfolio tends to be concentrated, with the manager typically taking strong bets on his top 10 best ideas, which account for 30%-35% of assets.
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