Henderson’s John Bennett has warned investors there is little value left in European large cap equities following the region’s strong rally.
Speaking at the Morningstar investment conference yesterday (May 13), the veteran European equity manager said the only value left in the region was in smaller companies but said the large size of his open-ended funds meant he wasn’t able to take advantage.
The size of Mr Bennett’s funds, such as his flagship £2.2bn Henderson European Selected Opportunities, has constrained the manager to invest in larger companies but he said he “cannot find a lot of value” in the sector.
Mr Bennett said he was “moving much more into small caps” within his investment trust, Henderson European Focus Trust, because its smaller size, £201m, gave him the flexibility to invest far down the market capitalisation scale, to companies with a size of less than €1.5bn.
The Henderson manager also warned following the “great run” in European equities, which has led the average fund in the IA Europe excluding UK sector delivering a return of 63.5 per cent, the recent correction in the market could continue for a short time longer.
But he said the outlook for European companies, in terms of earnings growth, was improving as the region recovers from many years of lagging the rest of the developed world.
He said the leadership of the market rally could shift from the multinational companies back to more domestically-focused companies as European economies begin to recover.
He tipped “domestic regional retail banks”, such as Bank of Ireland or Lloyds Banking Group, as an area that had potential to deliver strong returns for investors and said he had been taking some profits from one of his favourite long term themes, pharmaceuticals, in order to put more money to work in domestically-focused companies.
