In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is James Henderson is Janus Henderson’s Director of UK Investment Trusts. He manages the Morningstar 2-star rated Henderson Opportunities Trust (HOT), Lowland Investment Company and the 3-star Janus Henderson UK Equity Income & Growth Fund.
Which Sector Shows the Biggest Promise in 2023?
I've been focusing on industrials. Companies that have controlled their costs well anticipating recession could flourish if things are not as bad as predicted and energy costs fall and labour costs rise less steeply than expected. Aerospace is a good early indicator of the health of the industrial sector. The number of miles flown each year is now back at pre-COVID levels. This matters for the many industrial companies that are part of the broader aviation industry. The improvement in aerospace suggests we will see good earnings advances across a range of industrial businesses.
What's the Biggest Economic Risk Today?
The big risk is that inflation remains embedded in the system. Not a very controversial view, I know, but a concern. We've had a long period of low inflation but there are several reasons to fear it could stay higher than we would like. I'm not just talking about wage inflation; the move away from fossil fuels is necessary but will mean energy prices keep rising. We've also got to pay for the move towards a more sustainable economy. That means we will need to pay more for food going forward, too.
Describe Your Investment Strategy
Our strategy is to be contrarian; we buy when decent companies are out of favour and, for various reasons, unpopular with investors. We try to buy when things are difficult, or perceived to be difficult, but when we believe the difficulties are overstated. This puts us more in a value camp. But we still want growth because the only way to avoid value traps is to invest in companies that are sustainable and growing.
Which Investor Do You Admire?
I know it’s boring, but I’d say Warren Buffett. His investment record is wonderful, and he publishes a great newsletter. Fund managers have peaks in the performance of their investments and when they pass, they don't often reinvent themselves. Buffet seems to have managed to do that. For instance, he now owns a lot of Apple, yet he used to say he never bought tech stocks.
Name Your Favourite 'Forever Stock'
Everything grows old and dies. It's just a question of how fast it happens. I’ve run funds for over 30 years and there is no one stock that I have held all that time. For the first 20 years that I ran Lowland I held Provident Financial but eventually that went wrong. That is the way with every company in the end.
What Would You Never Invest In?
I don't invest in tobacco. I know it's controversial for income investors not to hold tobacco – and Lowland is at heart an income fund – but I don’t see why you would make something that kills your customers. Also, the numbers giving up smoking globally always surprise me; the market is shrinking faster than people think.
Growth or Value?
Wrong question – growth comes in all areas. If I must choose one, it would be value because growth always plays itself out. By that I mean that company lifecycles are getting shorter and a strong, growing company today will almost inevitably decline in the future. As a result, you shouldn't pay too much for today's earnings.
House or Pension?
This is a generational issue. For many of the older generation their house is their pension. But for that to work, younger people must buy overpriced houses, and then work all their life to pay off the mortgage on it. That isn't sustainable, so, it's got to be a pension for the younger generation. They can't rely on house price inflation like their parents.
Crypto: Brilliant or Bad?
I can see the argument for it, but I only really invest in things – products. I don’t see crypto as a useful product. It doesn't make you better or do anything for you. I don't invest in gold for the same reasons.
What Can be Done to Improve Diversity in Fund Management?
The key is to realise that there must be an openness to ideas and that the world is changing fast. The people that are running funds now are already carrying too much of yesterday's baggage. Luckily, I believe in reverse mentoring, and I learn more from the younger members of the team, who bring diverse experiences and insights, than I do from the older generation of managers.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
With nearly 40 years in the industry, I’ve been engaged in a fair few companies that have gone on to fail, but that’s why you diversify. One company I am proud of is Croda. I invested in the early days when it was a paternalistic, old fashioned Yorkshire chemical company. Now it is a giant in global healthcare.
What’s the Best Advice You’ve Ever Been Given?
Things are never as good as you're told, and never as bad. Well, usually at least!
What Would You be if You Weren’t a Fund Manager?
A trainer of slow racehorses!
