Special Situations: the Trust’s Powerful Differentiator

by | Feb 10, 2015

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John Bennett, Director of European Equities at Henderson Global Investors, provides insight on special situations within his Henderson European Focus Trust plc:

Over the years I have frequently discussed the advantages investors enjoy when owning investment trusts. Recently, I have been reminded of these again.

I am not overly confident in the markets presently. US equities, the forerunner for global risk assets, are too highly valued. Political paralysis in the Eurozone coupled with drag from financial repression and excessive debt means relatively low valued European equities are, in my opinion, not actually that cheap.


At times like these there are unique positions in the Trust that give me some confidence: the special situations.

For my large open-ended funds these stocks are often inappropriate on account of being too small and too illiquid; we simply couldn’t trade them into meaningful portfolio positions nor use them to raise cash quickly enough to fund any necessary redemptions.

In the closed-ended structure the absence of capital flows means we do not have to worry about these issues; there’s plenty of time to trade the stocks and aim to get the best price for our investors. While special situations are not a large part of the portfolio’s strategy I do believe they set the Trust apart from its open-ended counterparts.


I point to two representative positions.

Tessenderlo Chemie is the first, a Brussels-based chemicals manufacturer operating in markets from agriculture, construction, food to health & hygiene.

We have been invested in the company for some time although its share price returns have been lacklustre over the years. The reason for our continued investment has been a subsidiary business known as Kerley, a manufacturer of agricultural sulphur-based liquid fertilisers. In North America it is the leading supplier in this area, aided by cheap raw materials from a highly integrated upstream business model. It places the company in a powerful competitive position due to the difficulty in replicating this model, leading to high growth, high margins and high returns.


Successive management teams have been somewhat underwhelming, however in 2013 a successful Belgium entrepreneur, Luc Tack, bought into the company and started to enact promising change. Following decisive cost cutting the company recently came to shareholders for a €200m rights issue, gladly partaken by ourselves. We believe it is now well positioned for growth.

Veidekke is the second, the largest building and construction firm in Norway. With over 6000 employees and footholds in Denmark and Sweden, it builds new homes, commercial property, public buildings, roads and railways. It has never lost money since its founding in 1936.

During the financial downturn their margins came under pressure, but with the subsequent clear-out of lower-margin business the recovery has lent to improving profitability.

We find particularly attractive the high level of employee ownership, a clear home-markets leading position and an extremely strong balance sheet. Indeed as we perpetually nag management to distribute more of the cash from its balance sheet, we have confidence in a continuing high and rising dividend.





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