Fund manager John Bennett has embarked on a new direction in an effort to revamp the Henderson European Focus Trust (LSE: HEFT).
"We have moved to take more active sector positions against the benchmark in order to differentiate ourselves from other passive strategies in the market, albeit at the expense of greater volatility," Bennett told Investment Week.
The trust, which has returned 8% over five years, or 21% over three years, had to adapt to survive, says Bennett, manager since December 2010. It currently trades at a 14% discount to its net asset value. Bennett has halved the trust's holdings to create a more concentrated portfolio, underweight in financials, utilities and telecommunications. He expects a ten-year bear market for the banks.
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The £90.4m trust has large holdings in healthcare and pharmaceuticals, the latter currently at 20.5%. However, Bennett told Fund Strategy that this could rise to 30%. Despite concerns over patent expiries, drug failures and regulation, he remains optimistic: "Science has not gone away," he says. "Today they do not need to find a single new drug to make money out of pharmaceuticals. Why? Because they are not priced to find new drugs."
Bennett expects companies to bolster cash flow by targeting markets where constant drug innovation is unnecessary, such as generic drugs, nutritional foods, animal health and emerging markets. Companies could still discover blockbusters, but "we as shareholders are not asked to pay a premium for that. We are just buying their cash flow."
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