De­liv­er­ing some­thing dif­fer­ent for in­vestors

In­vest­ment trust of­fers ex­po­sure to a range of di­verse as­set classes in one neat pack­age

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Housed within the AIC’s Flex­i­ble In­vest­ment sec­tor, Hen­der­son Al­ter­na­tive

Strate­gies Trust (HAST) ex­ploits global op­por­tu­ni­ties not usu­ally read­ily ac­ces­si­ble in one ve­hi­cle to pro­vide share­hold­ers with long-term growth. The trust trades at a 17.3% dis­count to net as­set value (NAV).

Man­aged by Janus Hen­der­son In­vestors duo Ian Bar­ras and James de Bun­sen, the trust of­fers share­hold­ers a di­ver­si­fied in­ter­na­tional multi-strat­egy port­fo­lio and ac­cess to an ar­ray of spe­cial­ist funds in­clud­ing hedge and pri­vate eq­uity.

‘It is all about al­ter­na­tive and spe­cial­ist strate­gies,’ says co-man­ager de Bun­sen. ‘We are unique in the listed trust world in that we’re a one-stop shop for al­ter­na­tives and less main­stream as­sets and strate­gies. We can and will take a top down view to al­lo­cate and de-al­lo­cate away from ar­eas depend­ing on what the mar­ket looks like.’

Dur­ing the six months to 31 March, global eq­uity mar­kets ral­lied strongly, be­fore fall­ing back due to con­cerns over ris­ing rates, the in­creased risk of more pro­tec­tion­ist global trade poli­cies and height­ened geo-po­lit­i­cal ten­sions.

Against this volatile back­drop, HAST gen­er­ated an NAV to­tal re­turn of -0.5%, a mod­est short­fall ver­sus the 0.3% re­turn for the bench­mark FTSE World To­tal Re­turn In­dex. A dis­ap­point­ing share price to­tal re­turn of -5.2% mainly re­flected a widen­ing of the dis­count from 12.5% at 30 Septem­ber 2017 to 17.4% as at 31 March 2018.

DI­VER­SI­FI­CA­TION IS YOUR BEST DEFENCE

The global eq­ui­ties sell-off seen dur­ing Fe­bru­ary and March served to re­mind any com­pla­cent in­vestors valu­a­tions are at his­tor­i­cally high lev­els and are vul­ner­a­ble to con­cerns over global growth, while the global econ­omy is mov­ing into a ris­ing in­ter­est rate en­vi­ron­ment.

Against this back­drop, HAST’s in­vest­ment strat­egy pro­vides in­vestors with a valu­able source of di­ver­si­fi­ca­tion through ex­po­sure to a well-man­aged, good-qual­ity port­fo­lio of al­ter­na­tive as­set and spe­cial­ist funds.

IDIO­SYN­CRATIC OP­POR­TU­NITY

Bar­ras re­tires on 30 June 2018, al­though co-man­ager de Bun­sen con­tin­ues in his role and will be joined by Peter Web­ster, who has worked along­side the pair for the past four years. De Bun­sen be­lieves this highly di­ver­si­fied port­fo­lio of­fers a range of good NAV growth op­por­tu­ni­ties, a num­ber of them idio­syn­cratic in na­ture and not de­pen­dent on bull mar­ket con­di­tions to de­liver their re­turns.

‘We think that valu­a­tions are stretched in main­stream as­set classes – eq­ui­ties and bonds are ex­pen­sive,’ says de Bun­sen. ‘Ev­ery­thing looks fairly fully val­ued and the en­vi­ron­ment is go­ing to get riskier. We’re at the end of QE, in­ter­est rates are go­ing up and that is a head­wind for eq­ui­ties.’

The pos­i­tive news for HAST share­hold­ers is that ‘our port­fo­lio is full of things that we think can with­stand or thrive in that kind of en­vi­ron­ment, such as hedge funds, which tend to be long/short.

‘Some of them re­ally like volatil­ity and their man­agers are find­ing lots of in­ter­est­ing short ideas out there.’

HAST has a high con­vic­tion port­fo­lio of around 30 core, longer-term hold­ings that rep­re­sent 94% of NAV, a seg­ment of the port­fo­lio un­likely to see sig­nif­i­cant stock turnover. HAST is re­duc­ing its an­nual man­age­ment fee from 0.7% of net charge­able as­sets to 0.6% on the first £250m of as­sets and 0.55% there­after and there is no per­for­mance fee payable.

KEEP­ING THEIR DIS­CI­PLINE

‘You just want to find the best hedge fund man­agers you can,’ says De Bun­sen, who puts an onus on their past per­for­mance. ‘Have they nav­i­gated trick­ier times in the past? We pre­fer man­agers who’ve demon­strated their skills and have a track record go­ing back ten years or so.’

In terms of keep­ing their dis­ci­pline, de Bun­sen says it is ‘just

about focusing on qual­ity all the time. We en­sure the man­agers are of the high­est qual­ity and the as­sets are of the high­est qual­ity’. Such dis­ci­pline has also en­abled HAST to suc­cess­fully avoid the peer to peer lend­ing space – ‘that’s been a dis­as­ter’.

SPE­CIAL SITS & CAT­A­LYSTS

‘We’ve tried to skew the port­fo­lio to­wards spe­cial sit­u­a­tions or in­vest­ments that have a spe­cific cat­a­lyst,’ says the man­ager. One new core in­vest­ment is a stock, namely Sigma Cap­i­tal

(SGM:AIM), a de­vel­oper of pri­vate ren­tal sec­tor (PRS) hous­ing in UK ar­eas re­quir­ing re­gen­er­a­tion and also the fund man­ager of closed-end fund PRS REIT (PRSR).

Given high de­mand for com­pet­i­tively priced, goodqual­ity ren­tal ac­com­mo­da­tion in the UK, de Bun­sen ex­pects PRS REIT ‘to grow sig­nif­i­cantly over the next few years which will, in turn, ben­e­fit Sigma.’ The in­vest­ment in Sigma, whose bot­tom line ben­e­fits each time the REIT raises money, has al­ready ‘gen­er­ated an at­trac­tive gain in just a few months.’

HAST has topped up its hold­ing in Safe­guard Sci­en­tifics, a US listed di­rect pri­vate eq­uity in­vestor with an un­der­val­ued port­fo­lio of health­care, fi­nan­cial ser­vices and dig­i­tal me­dia firms and helps them grow.

Safe­guard re­cently an­nounced it would be sell­ing its en­tire in­vest­ment port­fo­lio, not car­ried at air value due to US eq­uity ac­count­ing rules, whose mar­ket cap is at a 40% dis­count to es­ti­mated fair value.

A standout per­former in HAST’s spe­cial­ist ge­og­ra­phy space has been KLS Sloane Robin­son, a long only emerg­ing mar­kets eq­uity fund that ‘has done ex­tremely well’, boast­ing a strong track record in pro­tect­ing cap­i­tal dur­ing dif­fi­cult mar­kets whilst tak­ing part in the up­side.

Ad­dress­ing the dis­count, de Bun­sen says ‘we would love it to be nearer to NAV, but it seems to us that there is al­ways a dis­count ap­plied to any­thing that is illiq­uid’, such as pri­vate eq­uity as­sets. (JC)

Source: Janus Hen­der­son In­vestors

Source: AIC/Morn­ingstar/Janus Hen­der­son In­vestors

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