Safety first A Korea-proof portfolio?
Investment Trust Insight
‘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