Fund Profile

Disclaimer

Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

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.

Analyst's 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 for investors according to the managers who joined us to discuss the outlook 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 our list of discount opportunities...
13 Feb 2019 Sweet treats
Eight trusts with the potential for strong returns, currently sitting on unusual discounts...
13 Feb 2019 Fund Analysis
The trust is trading on a 16% discount, making it one of the cheapest UK equity trusts...
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 consider the outlook for UK equities as they endure their Brexit induced 'darkest hour'...
22 Jan 2018 Imagine
Star fund manager James Henderson thinks imagination is an essential requirement in an age of relentlessly depressing headlines...
02 Aug 2017 Carpe Discount…
We analyse just how much discount movements have on shareholder returns in the AIC UK All Companies sector...
21 Jul 2017 Video: James Henderson
Henderson Opportunities Trust manager James Henderson gives his view on the smaller companies market...
29 Jun 2017 Brave new world
We find out how the outlook appears today to you, and ask the top managers in each sector, region and asset class where they see the opportunities in it...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
06 Jun 2017 Fund Analysis
A UK growth focused investment trust which invests in companies of all sizes, managed with a contrarian approach by an experienced manager with benchmark-agnostic, high conviction attitude…
20 Apr 2017 Video: The Bankers Investment Trust
Fund manager Alex Crooke explains his approach to managing money...
18 Oct 2016 Is the UK cheap?
As being bullish on the UK is looking increasingly contrarian, we take a look a look at the discounts on offer...
31 Aug 2016 A familiar picture
As traditional sources of income dry up, the scramble for dividends in Asia is just getting started...
17 Aug 2016 Land of the rising dividend?
Henderson global equity income expert Ben Lofthouse investigates the potential for dividend growth from the world’s third largest economy...
26 May 2016 Video: Why the ride isn’t over for growth stocks
Henderson Eurotrust fund manager Tim Stevenson thinks talk of a flight to value has actually left some quality growth stocks looking very attractive...
06 May 2016 Video: Has Brexit turned out the lights on European capital investment...
Henderson head of European equities John Bennett examines the impact of Brexit on European companies' investment programmes...
29 Apr 2016 A sea change for pharmaceuticals
Despite criticism of the bad practise in the industry, some experts believe a bounceback is underway...
27 Apr 2016 A new reality in Europe
Henderson Eurotrust fund manager and director of European equities Tim Stevenson thinks markets are acclimatizing to a new reality of subdued growth..
04 Mar 2016 Pacific Horizon chairman points to more strife for Asia
Pacific Horizon Trust's Chairman, Jean Matterson, thinks "Getting real positive returns will be difficult" for 2016...
08 Feb 2016 A strong year for Henderson Opportunities Trust
The trust is available on a wide discount despite strong returns last year, but analysts warn that investors must expect volatility…
View all

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