Henderson’s Bennett criticises passive comparisons

Henderson’s Bennett criticises passive comparisons

Henderson’s John Bennett has criticised the way the performance of stock pickers are compared to passive funds.

Speaking at a shareholder event yesterday (1 February), Mr Bennett lambasted commentators who suggest active management is dead, pointing out that index funds can only win or lose from market falls or gains, not outperform them. 

The manager of the £264m Henderson European Focus trust said: “Much of the active industry deserves the criticism that is levelled but I think the investment industry should be banging the table a lot harder for what can be achieved.”

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Mr Bennett, who also heads up the group’s European equities team, said part of the problem is analysts sometimes compare the returns of active and passive funds over a one-year time span, which he said is too short a timeframe to judge performance properly.

The trust manager also said he was concerned about people equating volatility with risk, pointing out that people are crowding into low volatility exchange traded funds (ETFs).

“The risk is the permanent loss of capital and it has nothing to do with volatility."

Commenting on changes to the portfolio, Mr Bennett said he bought into value and sold out of growth stocks in the second half of last year, marking a major change in his holdings.

"These growth stocks have walloped the rest out the market for years, but I think that is now over and they are having their first big challenge since the financial crisis." 

“I felt the air was getting thin and overcrowded in these quality growth stocks,” he said, adding however there needed to be a catalyst for change that would push these types of investments out of favour.

This catalyst, he said, has come in the shape of the Brexit vote, pointing out that this prompted the resurgence of inflation. 

“I felt this one way train to deflation was going to derail, and this has a big implication on what you want to own.”

On a sector basis, he also said European banks have become a good place to be, which prompted him to "dare to go into the waters".

“They will never be great businesses and they don’t have to be good businesses, but they are getting back to being mature cyclicals with a dividend yield.”

Mr Bennett pointed out that a lot of the balance sheets of these European banks have been healing over the years due to the spate of regulatory change, which therefore make them better investment opportunities. 

"The banks have stopped the madness and their balance sheets are getting healthier," he said, adding: "The oxygen has come in on the yield curve and banks have been wrongly priced."