James Henderson’s decision to amplify his exposure to stockmarkets through the use of gearing has paid off so far this year.
The manager’s use of gearing – a form of borrowing to increase exposure to markets – on the Henderson Opportunities Trust has seen the company’s share price rise 13.2 per cent in the six months to the end of April, according to an interim report.
This is more than four times the 2.7 per cent from his benchmark FTSE All-Share index.
Mr Henderson took gearing to 14 per cent on the trust, which combined with his stock selection in mid- and small-cap stocks to boost performance.
He said that while the approach on the trust is a long-term one, he can take a shorter-term view of opportunities when conditions allow. He said his activity in the initial public offering (IPO) market illustrates this approach.
He added: “We have taken advantage of market excitement around certain issues to bank some very short-term profits. Our usual investment horizon is driven by our appreciation that the cycle for any business to grow and mature is not easily reconciled with the volatility of the market.
“In the six months to the end of April, we have been active in either buying or selling in 50 companies, against 27 last year, meaning about 40 per cent of the portfolio remained unchanged. We sold out of 12 holdings completely while starting another 15 new investments.”
Equipment rental company Ashstead was among the disposals. Mr Henderson explained that the next three years are likely to see a gradual de-rating of the shares as economic cycles on both sides of the Atlantic mature.
“This could mean growth-cyclical stocks, such as Ashtead, revert to a more modest rating,” he stated.
“Elsewhere, Monitise, the mobile banking technology platform, has progressed well in winning new clients for this growing market, but the company’s path to profitability has lengthened once again. Having made significant profits, it was time for us to move on.”
Mr Henderson also sold his position in pharmaceutical products specialist Alliance Pharma, which he had held for “some years”.
“Recent changes in UK government and NHS procurement policy has meant the profit profile will be flat for a few years, so we decided to take our profit and deploy proceeds elsewhere,” he said.
On the purchase side, AstraZeneca has been the most significant addition, tackling falling sales by reinvigorating its research pipeline.
“Telecity is another new purchase: this company is a leading operator of data centres across Europe, a high-growth market segment, but the management has failed to connect with investors during the past two years and the rating has declined to a level we find attractive,” said Mr Henderson.
On the IPO side, he noted new positions in 4D pharma and Safestyle.
“In 4D pharma we see an exciting future in the development of platform technologies – targeting, for instance, auto-immune diseases, where its board has extensive reach into global networks of research teams working in new areas,” he added.
“Safestyle, a replacement windows and doors business, has established a solid value proposition in the market and looks set to benefit from increased consumer confidence in the coming years.”
IPO market attracting managers’ attention
The raft of companies listing shares for the first time has prompted many fund managers to take a flutter in the past year.
The starter gun was fired by Royal Mail, and there has been a raft of initial public offerings (IPOs) since.
While the Royal Mail listing is now under scrutiny, the rest seem to have secured a stable start to their life as listed companies.
Schroders’ small cap star Paul Marriage told Investment Adviser earlier this month he had bought into eight IPOs for his £1bn Dynamic UK Smaller Companies fund recently, while Premier Asset Management’s Chris White has been keen on newly listed firms.
Motoring company AA has been backed by UK equity stars Neil Woodford and Liontrust’s Anthony Cross as it came to the stockmarket for the first time.
The sector seems to have boosted Henderson Global Investors’ James Henderson (pictured), too: he backed Royal Mail but quickly sold out following a rampant appreciation in its stock price earlier this year. While he also sold out of estate agency Foxtons earlier this year, he has revisited opportunities to buy companies as they list.
Investors should, however, keep an eye on the types of companies coming to market and make sure the businesses fund managers are buying are likely to have a sustainable life in stockmarkets, rather than just being able to list on the coat tails of market euphoria.
