Skip to the content

James Henderson’s biggest regret of the past year

10 August 2017

The veteran Janus Henderson fund manager talks through the decision he has most regretted over the past 12 months.

By Jonathan Jones,

Reporter, FE Trustnet

The Henderson Opportunities Trust has had a tough couple of years but there is one regret that veteran fund manager James Henderson said has hurt his performance more than most over this period. 

While the trust has been a top long-term performer, the manager has failed to sell out of stocks as aggressively as he should have in recent years, impacting recent performance. 

Last year, the fund was hit by a combination of factors that made it a “poor year”, the manager said, with the shift in sentiment towards the industrials sector particularly affecting performance.

“Always the starting point [when talking about 2016] is that there had been an economic upswing that had helped industrials and I have got quite a bias to industrials,” Henderson said.

As the below chart shows, the industrials sector underperformed the FTSE All Share though some companies within the sector were more affected than others.

Performance of indices in 2016

Source: FE Analytics

One particular area that the manager likes but that took a badly last year was aerospace, which also lagged the FTSE All Share as a sector.

“I thought in areas, particularly in aerospace, some of the margins people were achieving weren’t sustainable but I thought there was and still is [opportunity],” the manager said.

“GDP is growing at 3 per cent globally but ‘miles flown’ globally is increasing 8 per cent this year and most years it grows at 3 or 4 per cent more than GDP – so it is a nice area.

“That has kept happening and aerospace is good but aerospace stocks had a bad year,” he added.

He cited a shift in models to the new 787 planes as one of the main reasons for the sector disappointment last year.

“The new generation of plane is very exciting – the 787 is a remarkable plane – but the early days of ramping up production haven’t been very profitable and the margins fell and share prices along with it,” Henderson said.

The aerospace sector was not the only industrials area struggling, with oil & gas services also suffering from fears over capex-cutting from the oil majors.

“There was a perfect storm in industrials that wasn’t really real in the medium-term sense,” the manager noted.


“We weren’t looking at long-term problems it was just that people like BP and Shell when the oil price fell cut capex severely and that drifted out into industrials more generally.

“Of course, they had to return to spending and that is what is happening this year. So, some of those stocks were overly hit.”

This points to a wider phenomenon within the market, Henderson said, which is that investors have been extremely quick to invest in momentum stocks.

He noted: “There is this thing in the market at the moment where people do like momentum both in share prices and in earnings and so companies that are strong get stronger and that are weak get weaker.

“It is difficult to completely understand why it has got so extreme. The stock market is taking some things too far sometimes and not paying enough attention to the second and third string.”

One such company that has been a victim of this is 4D Pharma, which was the largest holding in the fund last year but has slipped back substantially since.

It is this investment that Henderson says has been among his biggest regrets, despite believing in it over the long-term.

The manager has had a good year so far in 2017, with the £104m Henderson Opportunities Trust returning 15.28 per cent – above both the FTSE All Share and IT UK All Companies sector, as the below shows.

Performance of indices in 2016

 

Source: FE Analytics

However, the manager added: “This year could have been a lot better to be honest in that our largest holding has fallen quite a lot this year.”

Indeed, 4D Pharma has had a tough year, down 60.98 per cent, but has been the victim of this momentum trade.

“Overall, it has been a good share for the portfolio,” Henderson said. “It came in at around £1 and it went to £12 in very short order.

“I sold some at £7, some at £8 and some at £10 but it was still the largest holding because of the speed that it went up and now it is back at £2.70


“It should never have gone up so much and I should have sold it down more aggressively but at the time I felt I was taking profit out.

“First I took out the initial stake and then I took out the initial stake again so if over five years it went back to zero I would have still made twice my money. Then I let the stake get quite big as a percentage because I was taking the top off slowly.”

He said: “You’ll usually make your next mistake trying to avoid your last one in fund management. I had often been selling things too quick into those upswings so I was deliberately selling slower.”

It means that while over a five-year view the company remains one of the trust’s better performers, it has impacted performance over the past 12 months.

Performance of stock over 5yrs

 

Source: FE Analytics

“In some ways if over the time we had held it, it had just gone from 80p to £2.70 you would think it was a nice investment,” Henderson said.

However, the manager said he will remain invested in the firm which he said remains on track and is progressing at the pace he expected it to.

“I don’t think anything is actually wrong it is just that this sort of thing can happen in AIM [Alternative Investment Market],” the managed noted.

“I’m trying to take a view through a longer period and so I wouldn’t hold it at all if I didn’t believe that it will come through.”

At the other end of the spectrum the biggest contributor to the fund so far this year has been AIM stock Blue Prism.

The firm specialises in robotic automation, particularly in the routine back-office and clerical tasks sector.

So far this year, the company has more than doubled, increasing by 104.13 per cent, as the rise of technologies behind driverless cars shining a spotlight on the sector.

It was also boosted by a strong first half, which saw revenues rise 133 per cent and recurring revenues almost treble.

“The individual biggest winner has been Blue Prism on AIM. We have taken a little bit of profit on it but it has still been a big contributor,” Henderson said.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.