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Performance review: Henderson Rowe optimistic on finding value in a binary world

Performance review: Henderson Rowe optimistic on finding value in a binary world

Henderson Rowe investment manager and director Giles Rowe is running with a value tilt in an environment he considers too driven by wildly opposing investor sentiment.

‘We have been in this very binary market for a long time with all sorts of horrible scenarios on either side, and I think one focuses on them too much because they are unpredictable,’ he said. ‘If you had gone underweight on every single bear call last year, you would have missed the market rally.’

Rowe is leaning toward the optimistic camp, believing concerns around central bank policy failure are overblown.

‘The authorities are not completely mad, so if they are going to cut back on [quantitative easing] intervention, it will be because the economy is showing signs of being able to take it,’ he said.

‘The Japanese have done a lot of the groundwork for us, and have shown us what can happen when you get it wrong.’

In the firm’s average balanced portfolio, default allocation is split 50/50 between holdings in exchange traded funds and direct equities selected from the firm’s buy list of 200 stocks.

Rowe’s 30% UK exposure is equally weighted between small, mid and large caps. Top picks include Pennon, a water utility and waste management company, which he said has a ‘very secure’ business in the South West as well as expanding recycling and energy arms.

‘Although it’s a tough market, it’s got a secure base and a growth source and is up 20% this year,’ he said.

In a similar vein, Rowe points to Ricardo. The company, which provides engineering services to the automotive industry, has found new avenues of growth assisting manufacturers to meet emission control regulation.

‘It’s a great business and has had quite a run-up. There was a sale note when it hit 800p and it’s now down below 700p, but we are holding on to it because it’s a great story,’ he said. At the time of writing, the stock was trading at 673p.

Rowe is also backing small cap favourite Abcam, an antibody supplier, despite recent concerns about its growth in the US due to funding cuts.

‘They have been building their supply base. It is not expected to be the next Amazon, but it’s a great model. Unlike Amazon, Abcam makes money, so I’d rather hold the latter.’

While Abcam is down 19.8% year-to-date, Rowe highlights it as a long-term holding and notes that a separate position in biopharmaceutical stock Shire is up 66% over 12 months.

Outside the UK, he is maintaining high conviction in US giant Tyson Foods, which he has held since late 2010.

‘It has a fantastic market presence and distribution system, and economies of scale,’ he said, adding the management was addressing some ‘ethical’ concerns. Over 12 months, the stock is up almost 70%.

While the business is primarily based in the US, it has been tapping into the theme of increased consumption of animal protein in China.

Conversely, Rowe dropped Polaris Industries, which makes snowmobiles, when the US stock hit its valuation target last month. ‘They were growing pretty fast, and the stock was up 39%, reaching our limits,’ he said.


Henderson Rowe’s average balanced portfolio is up 14.2% over 12 months, outperforming the MSCI All Country World Index benchmark, which rose 13.5% over the same period. Over three years, the average model posted 22% versus the benchmark’s 14%.

On a forward view, Rowe said that uncertainty about earnings growth is a concern, which was leading him to favour companies with dominant positions within their sectors.

‘In a downturn, you want to be holding the companies that are building their market share, beating up the competition and grabbing parts of the market.’

With that in mind, he is backing French retailer Groupe Casino, which he said has come through tough trading conditions, rising 18% this year.

In fixed interest, where he has 28% in direct positions, he is favouring shorter duration sterling corporate bonds, but said he would reduce this on signs of sterling weakness.

His international bonds exposure, at 14%, includes a position in the iShares Euro High Yield Corporates Bond ETF.

Buy: Boskalis

‘A very focused business that has been able to grow internationally and win decent contracts. They also have decent cash flow yield of 6% and their civil engineering skills are in huge demand in new areas, such as coastal erosion and defences, and by the government.’

Hold: Casino

‘On the back of the European recovery and because it has had a lot of self-help. They have been remodelling their corporate structure, selling the less well performing property division and consolidating their online strategy.’

Sell: Rexam

‘The consumer packaging company fell out of our valuation range, with valuations tailing quite sharply over the last six months on the back of a currency issue. But it’s a great business and I’ll probably buy in again.’

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