Henderson adds Europe cyclicals on recovery hopes

LONDON (Reuters) - Henderson EuroTrust is adding to its cyclical exposure, whilst sticking with its quality growth names despite some underperformance in this area through the rally.

Tim Stevenson, manager of the 129 million pound trust (HNE.L), said that about 15 percent of the portfolio was now made up of cyclically-oriented holdings added over the last three months, such as Henkel (HNKG_p.DE) and Daimler (DAIGn.DE).

"These are economically-sensitive names that should see a bounce back in earnings predicated on the recovery coming through," he said at a briefing on Tuesday.

But he is also sticking with companies that he believes will do well irrespective of the economic environment, citing Spanish fashion retailer Inditex (ITX.MC), which owns Zara, and Bureau Veritas (BVI.PA), which provides certification services.

The trust, which invests in large and mid-sized European companies, saw a net asset value total return of 16.92 percent over the 12 months to end-September, marginally ahead of the benchmark, but is only ranked seventh of the 11 trusts in its peer group.

Stevenson said the trust had lagged the sector during the rally due to its exposure to quality companies that never fell to the distressed levels of the main rally constituents.

"Quality companies that have met or even beaten expectations have seen share price declines," he said, citing holdings Syngenta (SYNN.VX) and support services company SGS (SGSN.VX).

Some of his quality growth names -- such as Nestle (NESN.VX) and Essilor (ESSI.PA), an opthalmic lens manufacturer, have done well in the rally -- but he has been adding quality cyclical names given the improving economic outlook.

OVERWEIGHT IN HEALTHCARE

Recent additions include Schneider Electric (SCHN.PA), where Stevenson said the combination of new management and a global reach should enable the company to make good progress in a more stable economic environment.

He is staying away from Scandinavian engineering companies like Sandvik (SAND.ST), however, arguing that even on the most optimistic earnings forecasts there is too much in the price.

Financials remains his biggest underweight with exposure largely via insurers such as Munich Re (MUVGn.DE). He added Banco Santander (SAN.MC) at a low price during the capital increase after missing out on the rally in banks, but he remains sceptical about the recovery story for more distressed banks.

He is overweighting healthcare where he sees a number of companies with strong and consistent growth qualities, citing Roche (ROG.VX) and Fresenius (FREG_p.DE) as examples.

"We are looking for companies that will emerge from the recession in a stronger position and they are not always perfoming well at the moment," he said. "Most people have written pharmaceuticals off but I wonder if this is premature with a company like Roche (ROG.VX)."

He argued that the European equity rally had further to go, with companies likely to benefit from growth in emerging markets. "Companies like Essilor, Schneider and Nestle have a significant amount of business in those markets, so although you might see short-term consolidation in equities after the big bounce back, the European story isn't over."

(Editing by Jon Loades-Carter)