Henderson European puts cash in banks as it preps for Fidelity merger

Henderson European shifts into financials as it better aligns itself with Fidelity European ahead of merger.

Underperforming Henderson European (HET ) has pivoted into financials as it aligns with Fidelity European (FEV ) in preparation for their merger.

The £635m Janus Henderson trust reported half-year results as it gets ready to merge with Fidelity European to create a £2.1bn giant.

Investors in HET may be willing the combination on given the disappointing performance of the trust in the six months to end of March, which saw the net asset value (NAV) total return decline 0.2% against a 3.5% increase in the FTSE World Europe ex UK benchmark.

Janus Henderson’s Robert Schramm-Fuchs and Nick Sheridan, who took over the running of the trust in February following the shock departure of co-managers Tom O’Hara and Jamie Ross, blamed the lag on the growth tilt of the portfolio, which particularly dragged in March as markets grew ‘apprehensive’ about US trade policies.

Novo Nordisk was the biggest detractor as the Danish pharmaceutical giant, which has been riding the success of its Ozempic weight-loss jab, faced supply issues in the US and disappointing trial results for a new weight-loss drug.

This led the managers to slash the weighting from 5.4% at the beginning of the period to 2.7% , acknowledging ‘near-term growth risks’.

The release of Chinese-developed artificial intelligence (AI) model DeepSeek also hurt the fund’s overweight positions in semiconductor stocks such as ASM International and ASML.

‘Although this release has shocked the markets, we believe it will ultimately drive greater demand for AI, supporting capital expenditure linked to these stocks, and we remain invested in them,’ said the duo.

Positive performance came largely from a shift into financials initiated by Schramm-Fuchs and Sheridan since February.

They ‘significantly increased exposure by initiating new holdings in four European financial stocks’, including banks BBVA and Erste Group.

‘Over the last two decades EU banks have been consistent underperformers, but they now present a more compelling investment proposition,’ said the managers.

‘After adequately rebuilding their balance sheets post-financial crisis, these banks are poised to enhance shareholder returns through dividends and buybacks.’

They added that ongoing consolidation in Spain and more recently Italy is reducing competition and ‘allowing for more rational loan pricing’.

‘Despite these improvements, their valuations still reflect a bleaker fundamental outlook,’ they said.

The pivot into financials will align the portfolio more closely with that of FEV, which HET set out plans to merge with earlier this month.

Stifel analyst Will Crighton said financials now account for nearly a quarter of the portfolio, up from just 8% at the beginning of the results period.

‘This should be helpful for the transition post the merger, with financials the top sector for Fidelity European at 27% of NAV and all these moves,’ he said, adding that reductions in technology and basic materials should also bring ‘the weightings closer to that of FEV’.

Crighton added that HET’s current 4% discount versus a 2% discount for FEV offers ‘an opportunity to see a small gain from the 33.3% proposed cash exit option’ being offered to shareholders as part of the merger deal.

HET chair Vicky Hastings said the combination with FEV is ‘highly compelling’ and the ‘best long-term option for shareholders’, who will gain access to FEV’s best-in-class managers Sam Morse and Marcel Stötzel.

The merger of HET and FEV continues a long-history of change in the trust, which itself was the product of a merger last year between Henderson European Focus and EuroTrust, after long-tme European Focus manager John Bennett resigned.