Housed within the AIC’s Flexible Investment sector, Henderson Alternative Strategies Trust (HAST) exploits global opportunities not usually readily accessible in one vehicle to provide shareholders with long-term growth. The trust trades at a  17.3% discount to net asset value (NAV).

Managed by Janus Henderson Investors duo Ian Barras and James de Bunsen, the trust offers shareholders a diversified international multi-strategy portfolio and access to an array of specialist funds including hedge and private equity.

‘It is all about alternative and specialist strategies,’ says co-manager de Bunsen. ‘We are unique in the listed trust world in that we’re a one-stop shop for alternatives and less mainstream assets and strategies. We can and will take a top down view to allocate and de-allocate away from areas depending on what the market looks like.’

During the six months to 31 March, global equity markets rallied strongly, before falling back due to concerns over rising rates, the increased risk of more protectionist global trade policies and heightened geo-political tensions.

Against this volatile backdrop, HAST generated an NAV total return of -0.5%, a modest shortfall versus the 0.3% return for the benchmark FTSE World Total Return Index. A disappointing share price total return of -5.2% mainly reflected a widening of the discount from 12.5% at 30 September 2017 to 17.4% as at  31 March 2018.

DIVERSIFICATION IS YOUR BEST DEFENCE

The global equities sell-off seen during February and March served to remind any complacent investors valuations are at historically high levels and are vulnerable to concerns over global growth, while the global economy is moving into a rising interest  rate environment.

Against this backdrop, HAST’s investment strategy provides investors with a valuable source of diversification through exposure to a well-managed, good-quality portfolio of alternative asset and specialist funds.

IDIOSYNCRATIC OPPORTUNITY

Barras retires on 30 June 2018, although co-manager de Bunsen continues in his role and will be joined by Peter Webster, who has worked alongside the pair for the past four years. De Bunsen believes this highly diversified portfolio offers a range of good NAV growth opportunities, a number of them idiosyncratic in nature and not dependent on bull market conditions to deliver their returns.

‘We think that valuations are stretched in mainstream asset classes – equities and bonds are expensive,’ says de Bunsen. ‘Everything looks fairly fully valued and the environment is going to get riskier. We’re at the end of QE, interest rates are going up and that is a headwind for equities.’

The positive news for HAST shareholders is that ‘our portfolio is full of things that we think can withstand or thrive in that kind of environment, such as hedge funds, which tend to be long/short.

‘Some of them really like volatility and their managers are finding lots of interesting short ideas out there.’

HAST has a high conviction portfolio of around 30 core, longer-term holdings that represent 94% of NAV, a segment of the portfolio unlikely to see significant stock turnover. HAST is reducing its annual management fee from 0.7% of net chargeable assets to 0.6% on the first £250m of assets and 0.55% thereafter and there is no performance fee payable.

KEEPING THEIR DISCIPLINE

‘You just want to find the best hedge fund managers you can,’ says De Bunsen, who puts an onus on their past performance. ‘Have they navigated trickier times in the past? We prefer managers who’ve demonstrated their skills and have a track record going back ten years or so.’

In terms of keeping their discipline, de Bunsen says it is ‘just about focusing on quality all the time. We ensure the managers are of the highest quality and the assets are of the highest quality’. Such discipline has also enabled HAST to successfully avoid the peer to peer lending space – ‘that’s been a disaster’.

SPECIAL SITS & CATALYSTS

‘We’ve tried to skew the portfolio towards special situations or investments that have a specific catalyst,’ says the manager. One new core investment is a stock, namely Sigma Capital (SGM:AIM), a developer of private rental sector (PRS) housing in UK areas requiring regeneration and also the fund manager of closed-end fund
PRS REIT (PRSR).

Given high demand for competitively priced, good-quality rental accommodation in the UK, de Bunsen expects PRS REIT ‘to grow significantly over the next few years which will, in turn, benefit Sigma.’ The investment in Sigma, whose bottom line benefits each time the REIT raises money, has already ‘generated an attractive gain in just a few months.’

HAST has topped up its holding in Safeguard Scientifics, a US listed direct private equity investor with an undervalued portfolio of healthcare, financial services and digital media firms and helps them grow.

Safeguard recently announced it would be selling its entire investment portfolio, not carried at air value due to US equity accounting rules, whose market cap is at a 40% discount to estimated fair value.

A standout performer in HAST’s specialist geography space has been KLS Sloane Robinson, a long only emerging markets equity fund that ‘has done extremely well’, boasting a strong track record in protecting capital during difficult markets whilst taking part in the upside.

Addressing the discount, de Bunsen says ‘we would love it to be nearer to NAV, but it seems to us that there is always a discount applied to anything that is illiquid’, such as private equity assets.

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