Class never goes out of style, as they say, and Jamie Ross, manager of Henderson EuroTrust (BP6QR38), is a big believer in buying best-in-class companies in terms of growth, quality and consistency.

Ross invests across Europe, excluding the UK, seeking out businesses with high and sustainable returns which he believes are undervalued by the market, and to a lesser degree in companies which are undergoing ‘a material improvement in their medium-term prospects’.

The fund’s biggest exposure is to consumer stocks, financials, healthcare and industrials, and its top 10 holdings are a who’s who of names with quality characteristics such as ASML (ASML:AMS), Hermès (RMS:EPA), LVMH (MC:EPA), Nestle (NESN:SWX), Novo Nordisk (NOVO-B:CPH) and Roche (ROG:SWX).

While yield isn’t a focus, over 10 years the net asset value total return has been a healthy 158%, more than 30 percentage points ahead of the 124% return for the FTSE Europe ex-UK index, and it has also beaten the index over one year despite the recent resurgence of value and cyclical stocks.

This value dynamic continued in July as European and US companies posted first-half results which on the whole were better than expected, and which in the minds of investors ‘increased the probability of an economic soft landing rather than a recession following a period of softening economic data’ says Ross.

Interestingly, despite a lower chance of a European recession, Ross has been cutting his holdings in banks and is now underweight the sector compared with the benchmark as he believes the net interest income-driven earnings upgrade cycle ‘is nearing an end, and at this point in the cycle attention should start to turn to the potential for higher loan losses’.

At the same time, the manager explains his reasoning for adding new stocks to the portfolio such as Dutch duo Heineken (HEIA:AMS) and Universal Music (UMG:AMS), whose qualities  might be less immediately obvious.

In the case of Heineken, which is experiencing falling volume sales, Ross admits signs of improvement are limited for now but says he is
‘very confident in the company’s long-term positioning’.

UMG has also been ‘a tough position to maintain faith in over recent quarters’ due to softer than expected streaming growth and weak margins, but the firm’s recent results give cause for optimism.

Another new purchase is Danish firm Zealand Pharma (ZEAL:CPH) which, like its much larger kinsman Novo Nordisk, has an obesity treatment, and which is potentially ‘significantly undervalued’ at its current price according to Ross.

Henderson EuroTrust trades at a 14% discount to net asset value and has a 0.75% ongoing charge.

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