Henderson Opportunities Trust (HOT) invests in UK stocks across the market cap spectrum. Managed by James Henderson and Laura Foll (who also co-manage Lowland Investment Company and the Law Debenture Corporation), HOT has an unconstrained portfolio that differs markedly from peers and the team’s other funds, with c 70% invested outside the FTSE 350 index, and c 55% in AIM stocks. HOT seeks capital growth but also offers a growing dividend (current yield of 2.4%), paid quarterly from FY20. The managers see the trust as one that will sit beside a mainstream fund in a portfolio and bring diversity to the combined list of holdings, not for the sake of it but for real capital appreciation. While HOT’s long-term performance record is strong, its returns in FY19 suffered as lowly valued UK small-caps (particularly those listed on AIM) have been out of favour.
UK equities remain relatively out of favour with global investors, even as the bellwether US stock market continues to test all-time highs. The broad UK market is trading at a forward P/E multiple c 17% lower than the world index, which could prove an attractive entry point if ongoing Brexit talks provide a positive resolution.
Unconstrained mandate, blending investment in exciting, fast-growing UK smaller companies (c 70%) with more established large and mid caps.
Small-cap stocks are currently at a wide P/E discount to larger companies.
HOT’s long-term performance record is strong, and it has significant recovery potential on the back of further reversal of Brexit-driven negative sentiment.
Dividends paid quarterly from FY20; 2.4% yield and multi-year dividend growth. Double-digit discount could narrow substantially should sentiment improve.
At 6 February 2020, HOT’s shares traded at a 17.1% discount to cum-income NAV. While narrower than the 12-month high of 22.6% seen in August, the wide discount reflects a lack of appetite for UK small caps and perceptions of illiquidity, particularly in AIM stocks. It thus has scope to narrow with a pick-up in sentiment.