Henderson’s ‘alternative’ trust looks a good bet

Bargain hunters worried about fragile stock markets could consider an ‘each-way bet’ on Henderson Alternative Strategies Trust (HAST).

Shares in the £115 million global investment trust trade 13% below their net asset value, a wide discount that reflects its troubled history but may not do justice to the turnaround managers at Janus Henderson have achieved since taking 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 the 2008 financial crisis. Henderson’s ‘multi-asset’ investment team spent their first three years cleaning up the fund and disposing of toxic holdings. Today the £132 million portfolio 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, fund managers Ian Barrass and James de Bunsen believe they can offer protection from mainstream share and bond markets which stand at all-time highs after an unusually long, eight-year rally.

Knife edge

With the world standing on the precipice 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 judging whether the revival under Janus Henderson has been sufficiently strong.

Data from Morningstar shows that over three years the portfolio has grown by an average annual rate of 6.5%, close to the managers’ informal target of 8%. With their restructuring complete, the past year to 31 August has seen the trust’s net asset value shoot up 15.6%. Critics says this is less than the 19.4% total return from the FTSE World index, although supporters says the fund’s rise has been smoother than its more volatile stock market benchmark.

This rehabilitation hasn’t gone unnoticed with renewed buying by investors propelling the shares’ total return up 24% over the past 12 months to August, ahead of the FTSE World index.

Barrass has his fingers crossed. ‘I would be very disappointed if shareholders decide not to continue it as I think we’ve done a good job and have generated good returns from what is a differentiated strategy.’

Vote offers ‘backstop’

One investor who tucked into the shares last October is Daniel Lockyer of Hawksmoor Investment Management in Exeter. He opened a small position for his firm’s Vanbrugh balanced fund when the stock stood at an even wider discount of 20%.

A key attraction for Mr Lockyer was the continuation vote in January 2019 which he explained could benefit investors whatever the result. He said the vote offered a ‘backstop’ should the trust’s performance deteriorate. If Henderson Alternative Strategies is wound up investors will see a mark-up in their shares as its assets are gradually sold and cash paid out. Alternatively, if it survives, investors can look forward to continued growth in its investments and possibly a further re-rating of the shares.

‘It’s an each-way bet and there aren’t many of those around at the moment,’ Lockyer said.

Lockyer likes the way the trust’s diversified portfolio does not move in step with stock markets. This makes it a good defensive investment at a time when investors also worry that rising US interest rates and reduced central bank support for asset prices could trigger a temporary crash.

However, Lockyer warned it would not be a safe haven in a prolonged and serious crisis like 2008. This is because trading in some of the esoteric funds it holds would freeze and depress its share price. For this reason he puts only 1.5% of the Vanbrugh fund in the trust.

Discount risk

Innes Urquhart, investment trust analyst at Winterflood Securities, agreed. ‘While the underlying assets won’t give you equity risk, there will be discount risk,’ he said, referring to the gap between the trust’s share price and asset value widening if another crisis occurred.

Urquhart is also concerned at the double layer of fees investors pay for the trust and the funds it buys. ‘The fee burden is an issue,’ he said. Underlying fund fees are not included in the 0.89% annual ongoing charges the trust discloses. The total level of charges could be closer to 2%, sources close to the company say, although they point out that the trust’s investment returns are after all costs.

Alan Brierley, investment companies analyst at Canaccord Genuity, is more positive, spying ‘light at the end of a long and dark tunnel’ for shareholders.

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. 

This article first appeared in the Telegraph on Saturday

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