Markets are acting in quite a complex way in Europe at present, being pushed higher more by people wanting to increase their weighting in Europe rather than any dramatic improvement in economic data. October and November thus far has seen some pretty strong gains for more cyclical areas of the market. There is a contradiction within the way markets are moving: what I think is potentially exaggerated optimism. Whilst economic news in Europe is marginally better and company news has generally been quite good, people are maybe getting a little ahead of themselves.
Overall, we anticipate a period of fairly low and volatile economic growth. We might get some quite good economic news, or some strong results, but then markets might get scared by renewed talk over tapering, a disappointing piece of data or inclement weather conditions, which could change people’s spending habits.
On the subject of results, the latest round of figures from LVMH and Heineken (neither of which we hold) were pretty weak. But results like this amongst other recognisable quality growth names have been a key reason behind the trend towards more cyclical names, in anticipation of a cyclical recovery that may, or may not, come through. There has been a bit of a ‘dash for trash’ in October and November and that is a part of the market in which we do not really participate. Nonetheless, whilst our long-term ‘quality growth’ investment style could be seen as a little unfashionable in this environment, we think the fund is reasonably well placed.
Tim Stevenson, manager of the Henderson Horizon Pan European Equity Fund