Small caps drag on Henderson Opps

The trust underperformed as guarded optimism gave way to outright pessimism on global stockmarkets, in the face of the eurozone sovereign debt crisis.

In spite of the drop in performance – the trust fell 4.7 per cent over six months while the FTSE All-Share declined by 0.6 – manager James Henderson stressed that small caps have also been responsible for much of the strong relative recovery seen in the past three years overall.

Over that period, the net asset value (NAV) of Henderson’s investment portfolio produced an total return of 72.4 per cent against 46 per cent from the benchmark.

Mr Henderson said that while there is a bias towards small companies in the portfolio it has a range and diversity of activity backed up by generally strong balance sheets.

“We employ gearing because it is our belief the returns from equities will be substantially greater than the cost of borrowing, but the combination of smaller companies and gearing has led to marked volatility in NAV,” he added.

“We will therefore be more active tempering this volatility by increasing exposure in larger companies so there is liquidity and flexibility in the portfolio. The number of holdings is likely to fall over the coming year as we believe in this difficult economic period, fewer companies will achieve strong growth and those that do will obtain a premium valuation.”

In 2011, the trust’s strong bias to industrials and technology led to a solid first six months but that performance unwound sharply over the summer and has remained in check in spite of generally good profit performances, as doubts around 2012 have grown.

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