Nick Sheridan
Henderson Horizon
Euroland Fund review
This document is solely for the use of professionals and is not for general public distribution.
The value of an investment and the income from it can fall as well as rise and you may not get back
the amount originally invested.
March 2016
1
Henderson Pan European Equity team
Dealing, Operations and Marketing Support
Eleanor Cameron Richard Brown
Analysts/Assistant Managers
Nick Kissack Asim Rahman Robert Schramm-Fuchs Bill Casey Rory Stokes
Large cap Mid cap Small cap
Growth Agnostic Value
Tim Stevenson
€6.8bn
John Bennett
€13.5bn
Nick Sheridan
€1.9bn
Simon Rowe
€1.4bn
Ollie Beckett
€1.7bn
Source: Henderson Global Investors, as at December 2015
2
Henderson Pan European Equity team
Deep-Value Core-Value Core Core-Growth High-Growth
Gia
nt
Larg
e
Mid
S
ma
ll
Mic
ro
John Bennett
Large cap core, Agnostic
Tim Stevenson
Quality growth
Nick Sheridan
Value
Simon Rowe
Mid cap
Ollie Beckett
Small Cap
Ben Wallace
Luke Newman
UK ARF
LONG SHORT
John Bennett
European Equity long short
Source: Morningstar, as at 30 June 2015
Performance
4
90
110
130
150
170
190
210
230
No
v-1
1
Ma
r-1
2
Jul-1
2
No
v-1
2
Ma
r-1
3
Jul-1
3
No
v-1
3
Ma
r-1
4
Jul-1
4
No
v-1
4
Ma
r-1
5
Jul-1
5
No
v-1
5
Henderson Horizon Euroland A2
MSCI EMU NR EUR
GIFS OE Eurozone Large-Cap Equity
Henderson Horizon Euroland Fund
Source: Henderson Global Investors, Morningstar, as at 29 February 2016
Bid-to bid, gross income reinvested, net of fees, in Euro, for the A share class, close of business pricing
Note: Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund
The left chart is rebased to 100 as at 8 November 2011, at which time the Fund changed its name to Euroland and has a new objective, benchmark and Fund Manager.
Performance since fund manager change
versus peers, November 2011 to 29 February 2016 Performance since fund manager change
percentage growth, November 2011 to 29 February 2016
94%
+50%
+54%
Index %
0
10
20
30
40
50
60
70
80
90
100
10 15 20 25 30
Cum
ula
tive r
etu
rn
Volatility (standard deviation)
5
Henderson Horizon Euroland Fund
Performance
0
2
4
6
8
10
YTD 1 year 2 years 3 years Since FM change 5 years
%
Relative performance
% YTD 1 year 2 years 3 years Since FM change 5 years
Fund -7.4 -4.7 4.8 15.2 16.6 13.1
Benchmark -9.2 -13.4 0.8 7.9 10.6 4.8
Percentile 13 5 9 1 1 1
Source: Henderson Global Investors, Morningstar, as at 29 February 2016
Note: As at 8 November 2011, the Fund changed its name to Euroland and also changed its objective, benchmark and fund manager. The Benchmark changed from the FTSE
W Eur ex UK to MSCI EMU. Performance is based on bid pricing, gross of fees, in Euro, annualised returns, A2 Acc share class, close of business pricing.
Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund
Henderson Horizon Euroland Fund
The Fund
7
Typical parameters
Number of holdings 40-50
Position size 1-5%
Sector average weights +/- 15%
Country average weights +/- 15%
Introduction to the Henderson Horizon Euroland Fund
• Value-biased stockpicking
• All Cap euro equities
• Focused portfolio with industry
and geographic diversification
Source: Henderson Global Investors
8
Henderson Horizon Euroland Fund
Fund MSCI EMU Index Notes
Dividend yield forecast 3.51% 3.76% Around the market
P/E forecast 13.64x 13.92x Cheaper than the market
ROE 19.1x 12.9x Better return than the market
Net margin 10.4% 9.4% Higher than the market
Beta 0.94
Active stance 71.8%
Forecast tracking error 4.0%
Current fund characteristics
Source: Henderson Global Investors, Barra Style Research, as at 29 February 2016
Note: Past performance of the Fund is not necessarily indicative of the future or likely performance of the Fund
9
Source: Henderson Global Investors, as at 29 February 2016
Fund is the Henderson Horizon Euroland Fund and index is the MSCI EMU NR Index
Note: Sector weightings are inclusive of cash
Henderson Horizon Euroland Fund
Sector and regional breakdowns
Country % of
Fund
% of
Index
Active
weight
Netherlands 17.4 8.2 9.2
Finland 8.2 3.3 4.8
United Kingdom 4.4 2.0 2.3
Ireland 3.5 1.7 1.8
Denmark 1.2 0.0 1.2
France 32.3 32.5 -0.2
Austria 0.0 0.6 -0.6
Italy 6.2 7.1 -0.8
Spain 4.4 10.1 -5.7
Germany 22.0 29.0 -7.0
Sector % of
Fund
% of
Index
Active
weight
Consumer Discretionary 22.1 15.1 7.0
Industrials 20.2 13.7 6.5
Information Technology 8.6 7.1 1.5
Energy 4.5 5.1 -0.6
Health Care 7.4 8.3 -0.9
Financials 18.6 20.8 -2.2
Telecommunication
Services 2.7 5.3 -2.6
Consumer Staples 9.2 11.8 -2.6
Materials 4.3 7.2 -2.9
Utilities 2.1 5.6 -3.5
10
The basic premise of investing
Buying stocks priced below their
intrinsic value
11
Investment process
Earnings
Use of earnings allows us
to ascertain the sustainable
earnings power of a company
Most
value Earnings
Use of earnings allows us
to ascertain the sustainable
earnings power of a company
Value
of growth
Growth adds value when
it is larger than the required cost
of capital, but it can destroy
value when cost of capital are
higher than the growth
Dividends
An attractive well-covered
yield increases the certainty
of an investor’s return
Net
Asset Value
This is the most certain
of all valuations, but will
need to be adjusted to
reflect economic reality
Stock screen used to establish investment value
12
Investment process
Investment
universe
~400 stocks
Value screen
Portfolio
construction
and risk
management
~40-50 stocks
Screen results
Top stocks go
forward
Validation
Asset value valuation
Earnings power
valuation
Implied growth
valuation
Quartile Number
of stocks
1 100
2 100
3 100
4 100
Value
of growth
Earnings
Dividends
Net Asset
Value
An overview
13
Investment process
1) How much would it cost to reproduce these assets?
2) How are the assets financed?
3) Could the assets be worth more if broken up or sold?
4) Does the company have any unrecognised assets?
5) Is competition decreasing?
6) Any catalyst for a value realisation event?
1) How stable are these earnings?
2) Are the earnings defensible?
3) How are the earnings utilised, distributed or retained?
4) Is the distribution policy sustainable?
5) Are the earnings backed by cash?
1) How is growth financed and what is the cost?
2) Is growth sustainable?
3) How much is this growth worth?
4) Is competition increasing?
De
gre
e o
f v
alu
ati
on
ri
sk
Implied growth valuation
Earnings power valuation
Asset value valuation
Validation – based on solid foundations
Value stock examples
15
Christian Dior an example of asset value
Share price 15/01/2016 €146
Market cap at 15/01/2016 €26.2bn
Sales June 16E €37,936m
PE (x) June 16E 14.67x
Dividend yield (%) June 16E 2.46%
Source: Bloomberg, FactSet, prices as at 15 January 2016
Business
• Luxury goods
• Christian Dior Couture: > €1.75bn sales
• 40.93% stake in LVMH – value: approx €28.6bn
Management
• Experienced management team
• Long-term shareholder – Group Arnault (72.86%)
Financials
• Couture ~15%+ annualised revenue growth over
last five years
• Property and treasury shares worth approx €700m
• Market cap of €26.2bn at approx 20%+ discount
to sum of parts (LVMH stake + property + Dior
Couture)
Initial
purchase
Source: Bloomberg, Factset, data as at 15 January 2016
The above example is intended for illustrative purposes only and is not indicative of the historical or future performance of the strategy. Henderson Global Investors, one of
its affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to individual securities should not constitute or form
part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not indicative of future results.
16
Renault an example of asset value
Share price at 15/01/2016 €75.13
Market cap at15/01/2016 €21.6bn
Sales Dec 15E €44,733m
PE (x) Dec 15E 7.16x
Dividend yield (%) Dec 15E 3.20%
Source: Bloomberg, FactSet, prices as at 15 January 2016
Business
• International car manufacturer
• Stock stands at a small (~ 12%) premium to value
of associate stakes (Nissan 43% €17bn, Daimler
3.07% €2.3bn)
Management
• Experienced management team
Financials
• Equity priced below asset value implies no
economic value will ever be added (0.81 x
book value)
• Product cycle now looks supportive for
volume growth
• Negatively impacted by Volkswagen diesel
scandal
Source: Bloomberg, Factset, data as at 15 January 2016
The above example is intended for illustrative purposes only and is not indicative of the historical or future performance of the strategy. Henderson Global Investors, one of
its affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to individual securities should not constitute or form
part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not indicative of future results.
Initial
purchase
17
RELX (Reed Elsevier) an example of earnings power and growth
Share price at 15/01/2016 €14.42
Market cap at 15/01/2016 €15.53bn
Sales Dec 15E €8,290 m
PER (x) Dec 15E 17.67x
Dividend yield (%) Dec 15E 2.76%
Source: Bloomberg, FactSet, prices as at 15 January 2016
Business
• Professional publishing and information business,
with strong positions in health, legal, risk,
exhibition and corporate
• Recurring sales and subscription model give
resilience to the business
Management
• Under long-term incentive plan senior
management are required to own significant
stakes in the company (multiples of annual salary)
• Management strengthened over recent periods
Financials
• High margin, high return on equity characteristics
• Significant barriers to entry, client relationships,
back catalogue, must-have nature of the product
• Approaching top of capital expenditure cycle,
market discounting little revenue growth –
reversion to the mean suggests otherwise
Source: Bloomberg, Factset, data as at 15 January 2016
The above example is intended for illustrative purposes only and is not indicative of the historical or future performance of the strategy. Henderson Global Investors, one of
its affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to individual securities should not constitute or form
part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not indicative of future results.
Initial
purchase
Where is Europe?
19
QE in Europe splits opinion
Source: Henderson Global Investors, as at 29 February 2016
* Draghi December 2015 press conference
LTRO = Long Term Refinancing Operation
1,000
1,500
2,000
2,500
3,000
3,500
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
LTRO 1&2 QE starts
Expansion since March 2015
= €615bn, €68bn per month
QE due to end in “March 2017 or beyond if necessary”* which would result in €1.2 trillion
further stimulus at current run rate
But: Andreas Uterman (Allianz) “If QE doesn't stop, western democracies in trouble”
ECB total assets (Euro bn)
20
-1
0
1
2
3
4
5
Fe
b-0
0
Aug
-00
Fe
b-0
1
Aug
-01
Fe
b-0
2
Aug
-02
Fe
b-0
3
Aug
-03
Fe
b-0
4
Aug
-04
Fe
b-0
5
Aug
-05
Fe
b-0
6
Aug
-06
Fe
b-0
7
Aug
-07
Fe
b-0
8
Aug
-08
Fe
b-0
9
Aug
-09
Fe
b-1
0
Aug
-10
Fe
b-1
1
Aug
-11
Fe
b-1
2
Aug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Headline - Euro Area Inflation (YoY%)
Core - Euro Area Inflation (YoY%)
Deflation?
Euro area inflation (YoY %)
Source: Bloomberg, as at 29 February 2016
Includes flash estimates for February 2016
-0.2%
0.7%
21
Eurozone GDP forecasts – slow growth
Consensus forecasts for GDP growth (YoY, %)
Source: Bloomberg, as at 29 February 2016
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
No
v-1
1
Ja
n-1
2
Ma
r-12
Ma
y-1
2
Ju
l-1
2
Sep
-12
No
v-1
2
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
No
v-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
No
v-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
No
v-1
5
Ja
n-1
6
2016
2015
2013
2014
22
Currency – will help earnings
Euro versus USD
Source: Datastream, as at 29 February 2016
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Dec-0
4
Ma
y-0
5
Oct-
05
Ma
r-06
Aug
-06
Ja
n-0
7
Ju
n-0
7
Nov-0
7
Apr-
08
Sep
-08
Feb-0
9
Ju
l-0
9
Dec-0
9
Ma
y-1
0
Oct-
10
Ma
r-11
Aug
-11
Ja
n-1
2
Ju
n-1
2
No
v-1
2
Apr-
13
Sep
-13
Feb-1
4
Ju
l-1
4
Dec-1
4
Ma
y-1
5
Oct-
15
Exch
an
ge
rate
Exch
an
ge
rate
Average
2013 = 1.33
Average 2014
= 1.33
Average
2015 = 1.11
23
Oil – deflationary but good for consumers and corporates
20
40
60
80
100
120
140
Ja
n-0
9
Apr-
09
Ju
l-0
9
Oct-
09
Ja
n-1
0
Apr-
10
Ju
l-1
0
Oct-
10
Ja
n-1
1
Apr-
11
Ju
l-1
1
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-1
2
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-1
3
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-1
4
Oct-
14
Ja
n-1
5
Apr-
15
Ju
l-1
5
Oct-
15
Ja
n-1
6
Price
pe
r b
arr
el $
Source: Datastream, as at 29 February 2016
Oil price – Crude Oil – West Texas Intermediate
$34
24
PMIs pointing to slow expansion
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Eurozone
Germany
Italy
France
UK
Spain
Manufacturing PMIs
Source: Bloomberg, as at 29 February 2016
Includes flash estimates for February 2016
25
Improving Bank lending supports earnings recovery in Europe
Source: State Street Global Markets, Bloomberg, Thomson Datastream: Asset Allocation Monthly, January 2016
European valuations?
27
Europe PE rating?
Source: MSCI, Global Financial data, Morgan Stanley Research, as at 26 February 2016
MSCI Europe – Price to earnings (latest = 16.4)
28
What does Schiller say?
Current Shiller PE (x) LT Median Disc, %
Italy 11.9 25.5 -53%
Portugal 8.5 14.1 -40%
Spain 11.6 19.0 -39%
Japan 25.6 41.2 -38%
Eurozone 13.5 20.5 -34%
France 16.4 22.7 -28%
UK 13.1 18.1 -27%
World 20.9 23.3 -10%
Germany 18.2 19.8 -8%
Switzerland 21.9 21.4 2%
US 24.7 22.8 8%
Source: J.P. Morgan, as at 5 January 2016
29
Bonds vs dividend yields
The scarcity of income
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Eu
rop
ea
n d
iv y
ield
US
div
yie
ld
AA
A €
co
rp b
on
d y
ield
BB
B €
co
rp b
on
d y
ield
Ge
rman
10
y B
und
US
10yr
bo
nd
yie
ld
Ge
rman
3m
FIB
OR
US
3m
ra
tes
Current (%) 30-year average (%)
Equity dividend yield relative to other asset classes
Source: Datastream, as at 29 February 2016
Equities Corporate bonds Government bonds Money markets %
30
European Equity Yield relative to Govt Bonds
Source: MSCI, Global Financial data, Morgan Stanley Research, as at 26 February 2016
Bps
(Latest = 308bp)
31
The future?
Source: Soc Gen, Lapthorne – November 2015 & SG European Equity Strategy 2016
32
M&A – it’s happening
-30 20 70 120 170
$1bn to $5bn
$5bn to $10bn
>$10bn
Deal number
0%
5%
10%
15%
20%
25%
0.0
0.5
1.0
1.5
2.0
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Volume ($ trillions LHS)
Percentage of European equity market
0 100 200 300 400 500 600
$1bn to $5bn
$5bn to $10bn
>$10bn
Deal volume ($bn)
Source: Henderson Global Investors, Bloomberg, as at 31 December 2015
Note: European M&A volumes
Deal value and deal number refer to 2015 in Western Europe
Percentage of European equity market = $ M&A volume divided by $ market value of MSCI Europe
M&A volume
Deal number
Deal volume ($bn)
33
Earnings growth – forecast
European earnings growth (YoY %)
Source: Henderson Global Investors, Goldman Sachs research, Citi group research, as at 31 January 2016
Red bars represent forecasts
0.7
-4.1
-10.7 -13.8
-4.2
47.0
11.7
20.7 21.9
3.4
33.2
23.9
-35.1
-22.9
54.0
31.2 29.6
17.6
6.0
-32.1
-6.1
39.4
-2.1 -5.0 -4.3
1.4
-1.0
6.7 11.8
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
34
European earnings growth forecasts
34.6
17.1 17.1 15.1 12.0 9.4 7.8
6.2 4.8 4.6 4.5 3.0
-1.0 -1.9 -3.4 -3.4
-12.0
-42.2
-54.3
19.5
7.3 6.6
11.3 16.4
9.8 9.1 5.2 4.7 3.2
6.8 4.2
7.7
-1.2
11.8
19.9
5.4
-20.2 -20.4
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Tra
ve
l &
Leis
ure
Ban
ks
Me
dia
Techn
olo
gy
Auto
mo
bile
s &
Pa
rts
Pers
on
al &
House
hold
Goo
ds
Real E
sta
te
Ind
ustr
ial G
oo
ds
& S
erv
ice
s
Fin
ancia
l S
erv
ices
Insu
ran
ce
Chem
icals
Tele
com
s
He
alth
Ca
re
Utilit
ies
Reta
il
Co
nstr
uctio
n&
Mate
ria
ls
Food
& B
evera
ge
Oil
& G
as
Basic
Reso
urc
es
Ea
rnin
gs g
row
th %
2015
2016
2015 forecast at the start of the year
Source: Citi Research, consensus estimates, as at 31 January 2016
The above data is on the Citigroup Pan European index
35
Outlook
• Low growth world is creating new challenges for world markets
• Monetary policy likely to remain very stimulative in Europe while Fed has started to
tighten very gently
• Main risks/surprises in 2016 • $ weakness
• H2 inflation increase
• Possible further terrorist activity
• China – political and economic stress mount sharply
• US and European economies grow ahead of expectations
• Brexit
• Equity valuations remain better than bonds
• Economic growth in Europe should be supportive of Euro stocks
36
Henderson Global Investors
201 Bishopsgate, London EC2M 3AE
Tel: 020 7818 1818 Fax: 020 7818 1819
The Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. This document is intended solely for
the use of professionals and is not for general public distribution. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus
(including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s
prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson
Global Investors Limited in its capacity as Investment Manager and Distributor.
Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355) (incorporated and
registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE and authorised and regulated by the Financial Conduct Authority) provide
investment products and services. Telephone calls may be recorded and monitored.
Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of
units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend
upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them
directly as charges, performance and terms and conditions may differ materially.
The securities included in this document are not registered in the Foreign Securities Registry of the Superintendencia de Valores y Seguros for public offering and, therefore, the
use of this document is only for general information purposes.
Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any
contract for the sale or purchase of any investment.
The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or
most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United
Kingdom Financial Services Compensation Scheme.
A copy of the Fund’s prospectus, key investor information document, articles of incorporation, annual and semi-annual reports can be obtained free of cost from the local offices of
Henderson Global Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Agnello 8, 20121, Milan, Italy, for Italian investors and
Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark
9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095
Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6
Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 6 Battery Road, #12-01
Singapore 049909; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.
RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong. Ref: 36J
G:\Dist\G\BS\Pres\Equ\Euro\Horizon Euroland Fund (Continental European)\2016\01. Jan\HEUZEI_SAL02_M_31012016+INTERNAL.pptx