Whatever the outcome of the referendum on European Union membership, the Continent will obviously remain an important trading partner, so although I concentrate on UK-based stocks I am always interested in hearing what an expert on events across the Channel has to say, especially one who talks as much sense as Tim Stevenson.
The portfolio manager of Henderson EuroTrust (HNE) is a man after my own heart. He looks, in his own words, for “good quality, consistent, reliable companies, mainly paying a dividend”. He will, occasionally, invest in a company that is not paying a dividend if he expects it to do so within the next one or two years.
This is despite the fact that the investment trust is not an income portfolio but rather one that is designed to produce capital growth.
To read the British press you would think that was a pretty tall order in Europe, especially within the Eurozone, but not so. The trust has been sufficiently successful, and has attracted sufficient numbers of investors, for it to trade at a premium to its assets several times over the past few months – investment trusts normally trade at a discount.
Stevenson firmly believes we are back to growth in Europe, even though forecasts are not particularly robust. With European equities valued at, on average, 14.5 times forward earnings, he does not think they are expensive. He has avoided big industrial conglomerates – and, mercifully, has no holding in VW – and takes a bottom up approach, looking for quality companies that are going to be world leaders.
With the state visit of Chinese President Xi Jinping in full swing, he made this timely comment: “China is moving into consumption. A lot of the consumption names are European.”
The lessons are: pick companies, not countries or sectors; go for quality; and choose dividend payers. Points I have made repeatedly in this column.
Festive Woes, Months Early
Get your retaliation in first can be effective on the football field but producing excuses for Christmas before the fireworks go up, literally and metaphorically, is taking the concept too far.
Home Retail (HOME) saw sales slip a little in its first half to the end of August but profits were actually a shade higher. Nonetheless, the owner of Argos and Homebase is already counting on missing its full-year target, warning that Christmas trading is less predictable than usual.
The problems are at Argos. Homebase has boosted sales of big ticket items such as kitchens and bathrooms, though this isn’t the sort of stuff most people will be buying at Christmas.
My first reaction was that Home Retail’s profit warning is ominous for the whole retail sector but that is perhaps also jumping the gun. So far this is specific to Home Retail. The shares dropped heavily and could have further to fall. If the company is going into its most important selling period in a spirit of pessimism, the prediction is likely to be self-fulfilling.
Mind the Economic Gap
I don’t like to be an old grouch, especially when one sees headlines about the government deficit shrinking sharply, best revenue figure since records began, much better than economists forecast, etc. However, the September figures left much to be desired.
The reduction in the Budget deficit is coming far too slowly and the month’s gap was far too close to £10 billion for my liking. Government spending was up 1% on a year earlier, which is way above inflation. Far from reducing spending, the austerity Chancellor is letting it run ever higher. Ditto the debt pile. The man who proposes that balanced Budgets should be enshrined in law will miss the current year’s horrendous target of £69.5 billion.
I remain optimistic about the stockmarket as companies generally continue to prosper. However, debt is the big cloud that hangs over it.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
