Henderson’s Neil Hermon has added a host of new companies to his portfolio, including some newly listed businesses.
The manager of the £528m Henderson Smaller Companies Investment Trust has added six new holdings to his portfolio, according to full-year results released earlier this month, as well as a handful of initial public offerings (IPOs) where companies list shares publicly for the first time.
Mr Hermon, who has run the trust for 11 years, said the new holdings included GP surgeries software firm Emis, insurance company Esure and UK and Irish media group UTV Media.
The manager said the IPOs he had backed included window and door provider Safestyle, coffee and cake shop chain Patisserie Holdings, and online fashion retailer Koovs, which is in the Indian market and is run by the founding management of Asos.
However, Mr Hermon did divest several holdings to make way for the raft of new investments. “To balance the additions to our portfolio we have disposed of positions in companies we felt were set for poor price performance,” he said.
“We sold our holding in Premier Farnell, the electronic component distributor, where the company is sacrificing margins to maintain sales in a competitive market.
“We also disposed of our holding in Monitise, the mobile banking platform technology company, where profitability has been pushed out for a number of years through the need to reinvest in technology development.
“We also sold our position in Kofax, the electronic capture software company, after a dual listing on Nasdaq pushed the shares up to levels where the valuation looks excessive.”
One of the biggest detractors to performance was not holding online grocery company Ocado, which in the 12 months to the end of May rose 62.5 per cent.
“The company has shown strong sales growth without ever translating that into sustainable profitability or cash flow,” he said.
Elsewhere, Mr Hermon said that after the strong rise by stockmarkets in the past few years, stock valuations were “now back to long-run historic averages”.
He said: “Corporate profitability has proved robust but has not shown much growth in recent years.
“It is difficult to see the market making material progress from current levels without an increase in corporate earnings.
“However, given an improving economic backdrop, we are hopeful that the outlook for corporate profitability is improving somewhat.”
Mr Hermon added mergers and acquisitions activity was “currently subdued” because companies were unwilling to take on financial leverage “in the face of perceived economic uncertainty”.
“An increase in mergers and acquisitions would be helpful for smaller companies in particular as merger and acquisition activity tends to be focused in this area,” he said.
The trust delivered a share price total return of 22.7 per cent in the year compared with its Numis Smaller Companies (excluding investment companies) index, which returned 19.1 per cent, the results said.
Trust Numbers
-15.5% – The discount of the price of the trust’s share relative to the net value of its assets
2% – The current dividend yield on the trust; one of the highest in the peer group
