Henderson Opportunities Trust (HOT) aims to outperform the FTSE All Share by investing across the market cap spectrum. The portfolio of c.90 stocks is dominated by smaller companies, and over 60% is currently invested in AIM.
Managers James Henderson and Laura Foll aim to hold stocks for three to five years on average, and lean strongly on company meetings to understand management teams and the potential of their businesses. James and Laura are also a keen supporter of IPOs, looking to back high-growth companies at very early stages.
The trust has a strong track record of doing well in rising markets, and is heavily invested in high-growth technology stocks as well as industrials and consumer discretionary companies. It is consistently geared, although with the ability to reduce the gearing at short notice, which in our view means that it is a higher-risk play.
The relatively small size of the portfolio is also of benefit in the smaller companies space, we think, as it means the managers can continue to invest in the smaller end of the market without having to own large percentages of the companies, which would then be hard to sell.
The discount ballooned out beyond 20% following the EU referendum’s Brexit result of 2016, and is currently trading at around the 16% level, making it cheaper than all but one of its AIC UK Equity peers and cheaper than all but two AIC UK smaller company trusts.
This trust offers high return potential thanks to its focus on small and mid-caps, consistently high gearing and cyclical and value tilts. With UK equities being out of favour thanks to Brexit, and small and mid-caps particularly unloved thanks to a perceived domestic bias, the trust is languishing on almost the widest discount in its AIC peer group. We would expect this to close when sentiment improves, and in the next bull market the trust could well trade on a premium as it has in the past. For this reason, the trust is in our portfolio of top discount opportunities.
|The manager is highly experienced, having run investment trusts since 1990||The cyclical bias in the portfolio means the trust could underperform if a no-deal Brexit hits hard|
|The trust is trading on a highly attractive discount and has traded on a premium when in favour||The discount could widen further should the sector remain out of favour|
|The trust has a record of strong outperformance in rising markets||The trust is volatile|