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magazineHenderson Opportunities is a value-focused trust going cheap
The double-digit discount to net asset at Henderson Opportunities Trust (HOT) looks unjustified given its long-term track record.
Trading 14.7% below its NAV, the investment trust has delivered a total return of 318.5% over the last 10 years.
This puts it near the top of the AIC’s UK All Companies category in terms of performance and yet it offers the largest discount.
A focus on UK value opportunities looks well aligned with the current market environment where a flood of incoming bids for British businesses is continuing to highlight their relative cheapness.
Managers James Henderson and Laura Foll take full advantage of the flexibility afforded them by the investment policy with no limits on sector or market capitalisation. The trust aims to hold 70 to 100 stocks.
As research house Edison observes: ‘Henderson Opportunities Trust may not have enjoyed the profile of its managers’ larger mandates, Lowland Investment Company (LWI) and Law Debenture (LWDB), but in our view it is the purest expression of their valuation-aware, total return-focused approach to running diversified UK equity portfolios.’
The trust focuses on seven different ‘buckets’: early-stage companies, small and medium sized compounders, fast growing smaller companies, large companies, special situations, natural resources and companies that are in recovery.
The aim is for each bucket to make up no more than 20% of the portfolio and the diversified approach is intended to ensure the portfolio can perform well in a variety of market conditions.
The ‘go anywhere’ approach is reflected in the top 10 holdings which feature small cap Scottish housebuilder Springfield Properties (SPR:AIM), FTSE 100 banks Barclays (BARC) and Natwest (NWG), North Sea oil producer Serica Energy (SQZ:AIM) as well as marketing group Next Fifteen Communications (NFC:AIM).
The portfolio was hit hard by the pandemic but in the period from the vaccine breakthrough in November 2020 to June 2021 the discount to NAV narrowed significantly as value investing came back into fashion.
However, in the past few months the share price has drifted lower while the NAV has continued to move higher, creating what we believe is a compelling window of opportunity for investors.
The focus is on capital growth rather than dividends, but the trust has delivered 10 years of unbroken growth in the payout and it has a historic yield of 1.9%. The ongoing charge is 0.9%. [TS]
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