Safety first A Korea-proof port­fo­lio?

In­vest­ment Trust In­sight

The Daily Telegraph - Your Money - - FRONT PAGE -

‘It’s an each-way bet and there aren’t many of those around’

Bar­gain hun­ters wor­ried about frag­ile stock mar­kets could con­sider an “each-way bet” on the Hen­der­son Al­ter­na­tive Strate­gies Trust.

Shares in the £115m global in­vest­ment trust trade 13pc be­low their net as­set value, a wide dis­count that re­flects its trou­bled his­tory. This price may not do jus­tice to the cur­rent man­agers’ turn­around since they took it over in April 2013.

For­merly known as SVM Global, the fund’s board sacked its pre­vi­ous man­ager, Scot­tish Value Man­age­ment, af­ter it ran into prob­lems in 2008. Hen­der­son’s “multi-as­set” in­vest­ment team spent its first three years clean­ing up the fund and dis­pos­ing of toxic hold­ings. To­day the trust in­vests in 40 in­vest­ment com­pa­nies and hedge funds cov­er­ing a range of spe­cial­ist sit­u­a­tions in emerg­ing mar­kets, in­fra­struc­ture, credit, pri­vate eq­uity and prop­erty.

By fo­cus­ing on al­ter­na­tive, less ex­pen­sive in­vest­ments that or­di­nary investors would strug­gle to buy, Ian Bar­rass and James de Bun­sen, the fund man­agers, be­lieve they can of­fer pro­tec­tion from main­stream share and bond mar­kets, which stand at all­time highs af­ter a long rally.

With the world seem­ingly on the brink of nu­clear con­flict be­tween the US and North Korea, investors need all the safe havens they can find. How­ever, Hen­der­son Al­ter­na­tive Strate­gies stands on a knife-edge of its own as share­hold­ers pre­pare to vote on its fu­ture at a tri­en­nial con­tin­u­a­tion vote in Jan­uary.

No one knows yet whether the trust’s big investors will de­cide to ex­tend its life or ask for their money back. Al­though the fund’s long-term re­turns re­main dire with an av­er­age an­nual loss of 2.4pc over 10 years, share­hold­ers’ fo­cus is on whether the re­vival un­der Hen­der­son has been suf­fi­ciently strong.

Data from Morn­ingstar shows that over three years the port­fo­lio has grown by an av­er­age of 6.5pc an­nu­ally, close to the man­agers’ in­for­mal tar­get of 8pc. With their re­struc­tur­ing com­plete, the past year to Au­gust 31 has seen the trust’s net as­set value shoot up by 15.6pc. This is less than the 19.4pc to­tal re­turn from the FTSE World in­dex, al­though the fund’s rise has been smoother.

This re­ha­bil­i­ta­tion hasn’t gone un­no­ticed, with re­newed buy­ing by investors push­ing the shares’ to­tal re­turn to 24pc over the 12 months to Au­gust, ahead of the in­dex.

Mr Bar­rass said he would be “very dis­ap­pointed” if share­hold­ers did not vote to con­tinue. One in­vestor who bought the shares last Oc­to­ber is Daniel Lock­yer of Hawksmoor In­vest­ment Man­age­ment. He opened a small po­si­tion for his firm’s Van­brugh bal­anced fund when the trust stood at a 20pc dis­count.

A key at­trac­tion for Mr Lock­yer was the con­tin­u­a­tion vote, which he said could ben­e­fit investors what­ever the re­sult. He said the vote of­fered a “back­stop” should per­for­mance de­te­ri­o­rate. If the trust is wound up, investors will see a mark-up in their shares as its as­sets are grad­u­ally sold and cash paid out. If it sur­vives, investors can look for­ward to con­tin­ued growth in its in­vest­ments and pos­si­bly a fur­ther nar­row­ing of the dis­count.

“It’s an each-way bet and there aren’t many of those around at the mo­ment,” said Mr Lock­yer. He said he liked the way the trust’s di­ver­si­fied port­fo­lio did not move in step with stock mar­kets, mak­ing it a good de­fen­sive in­vest­ment. How­ever, he warned that it would not be a safe haven in a pro­longed and se­ri­ous cri­sis like the one in 2008.

This is be­cause trad­ing in some of the es­o­teric funds it holds would freeze and de­press its share price.

Innes Urquhart, an an­a­lyst at Win­ter­flood Se­cu­ri­ties, is con­cerned at the dou­ble layer of fees investors pay for the trust and the funds it buys. Un­der­ly­ing fund fees are not in­cluded in the 0.89pc an­nual “on­go­ing” charge – to­tal charges are closer to 2pc, sources close to the com­pany said.

If you think stock mar­kets could crash but avoid a fi­nan­cial melt­down, shares in Hen­der­son Al­ter­na­tive Strate­gies look good value, al­though they may end up be­ing a short-term in­vest­ment if its share­hold­ers de­cide to call it a day.

With the world seem­ingly on the brink of nu­clear war investors need all the safe havens they can find

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