Fund Profile

Disclaimer

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Overview
Despite strong outperformance, HOT’s shares have moved to a substantial discount…
Overview

Managed by James Henderson and Laura Foll, Henderson Opportunities (HOT) trust aims to achieve capital growth in excess of the FTSE All-Share index through a portfolio of UK companies. Operating with an unconstrained mandate with regards to market capitalisation, the trust structurally incorporates exposure to seven different categories of stocks.

As we discuss under Portfolio, there remains significant flexibility in the indicative ranges of these different categories and the managers are primarily driven by stock opportunities they are identifying. However, these different categorisations are used to help ensure the portfolio does not become overly aligned with specific macroeconomic outcomes and remains balanced. The indicative ranges further give rise to a structural overweight exposure to smaller companies.

This leads to a fairly high degree of correlation in the relative fortunes of HOT and UK mid and smaller caps. Along with consistent use of Gearing, this has helped returns in recent months. The balanced stylistic approach incorporated and a degree of valuation discipline in rebalancing away from previous winners ensured that HOT outperformed in both the pre-vaccine and post-vaccine rallies seen in 2020 and 2021 to date, with different portions of the portfolio boosting returns at different times.

Despite this, HOT has seen its discount widen once again to c. 11.7%. Although this is somewhat narrower than HOT has typically traded at in recent years, it is substantially wider than the peer group. As we discuss under Discount, the discount has widened once again in recent months having traded at close to NAV earlier in 2021 with share price declines against a relatively static NAV.

Kepler View

HOT shareholders have enjoyed outperformance over the longer term over the past five and ten years, and with an actively differentiated portfolio and a consistently positive information ratio we think that this can in part be attributable to stockpicking. The diversified investment approach and use of different structural categorisations looks to us to have prevented factor risk from becoming the primary driver of relative returns, though we think the consistent deployment of gearing and structural tilt towards small caps lends the portfolio something of a degree of pro-cyclicality. This structural overweight to small-caps differentiates HOT from peers in the UK All Companies sector, but is likely to do so even more from a typical open-ended product. We note that over the five years to 25/06/2021, HOT had the second highest tracking error in the UK All Companies sector on a total return basis (Source: Financial Express Analytics), emphasising the differentiated proposition.

Despite the strong long-term returns, the relatively wide discount compared to peers looks attractive. With the discount nonetheless narrower than has been seen on average over the previous five years, this cannot be taken as a given, but should UK outperformance relative to the rest of the world and HOT’s NAV outperformance persist we think that there remains the potential for a substantial boost to returns from discount narrowing. However, the relatively small market capitalisation of HOT perhaps precludes some institutional interest which might otherwise catalyse this.

bull bear
Differentiated and highly active portfolio Discount has frequently proven volatile
Wide discount compared to peer group average Gearing can exacerbate downside (as well as amplify upside)
Has tended to outperform in rising markets The trust is subject to a performance fee
Continue to Portfolio

Fund History

30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
14 Jul 2021 Grade inflation
We look at how our discounted opportunities portfolio has done in the first half of the year and update on the performance of our long-term rated funds…
08 Jul 2021 London Calling
UK equities represent a ‘once in a generation’ opportunity according to the managers who joined us at our event last week…
07 Jul 2021 Slides and Audio: Henderson Opportunities Trust
Download the presentation and listen to the audio from our 'Cool Britannia' Summer conference on 01 July...
07 Jul 2021 Slides and Audio: Roundtable - The outlook for UK plc
Download the presentation and listen to the audio from our first roundtable discussion with James Henderson, James de Uphaugh and Rory Bateman...
30 Jun 2021 Fund Analysis
Despite strong outperformance, HOT’s shares have moved to a substantial discount…
23 Jun 2021 Time to back Britain?
After a challenging period for the United Kingdom, we wonder if it could be the most exciting market on a five-year view…
09 Jun 2021 Cool Britannia?
Join the team at Kepler Trust Intelligence and six leading UK fund managers as we examine the prospects for UK equities with COVID in retreat and Brexit uncertainty finally behind us…
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
26 Jun 2019 Measure for measure
In the first of a two-part series, we examine the tools investors can use to assess how active a manager actually is…
01 May 2019 Sweet or sour?
Three months in, we check up on the progress of our discount opportunities portfolio...
13 Feb 2019 Sweet treats
The eight trusts with strong prospects, but wide discounts...
13 Feb 2019 Fund Analysis
The trust is trading on a 16% discount, making it one of the cheapest UK equity trusts...
30 Jan 2019 The Growth Portfolio
Our ten investment trust picks for long-term capital growth...
25 Jul 2018 The Endurance Growth Portfolio
The purpose of the Endurance Growth Portfolio is to generate long-term capital growth with a bias towards quality and defensive characteristics...
23 May 2018 Fund Analysis
Henderson Opportunities Trust aims to outperform the FTSE All Share by investing across the market cap spectrum...
23 May 2018 Backing Blighty
We highlight trusts with a heavy focus on domestically focused UK equities...
25 Jul 2017 Carpe discount
Our analysis shows that there is a right time, and a wrong time, to seize a trust which is languishing on a discount...
19 Jun 2017 The investment trust advantage...
Our event in June saw eight of the UK's most experienced fund managers discuss the outlook for each major asset class...
12 Jun 2017 Fund Analysis
24 May 2017 Fund Analysis
24 May 2017 Hard knocks
Our long term growth model portfolio suffered a serious setback when the Brexit vote came through, but has lived up to its name since then...
21 May 2017 Brave new world
We ask the top managers in each sector, region and asset class where they see the opportunities in the months ahead...
20 Apr 2016 A wild ride for Endurance Growth
Our long term growth model portfolio has had a white knuckle ride since launch in July...
19 Apr 2016 Fund Analysis
07 Sep 2015 RIT Cap stands out amid market chaos
RIT Capital, the most risk averse member of The Endurance Growth Portfolio, has eked out a positive return against a backdrop of plunging markets this summer
07 Jul 2015 Fund Analysis
10 Jun 2015 The Endurance Growth Portfolio
Five investment trusts with outstanding long-term growth prospects
View all

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