Shares Magazine - August 22, 2019

INVESTMENT TRUSTS

 | SHARES | 22 August 2019

Strategy is paying dividends for this trust’s long-term shareholders

The investment trust

on a quest for growth

and value

O

ne of the largest

and most liquid UK

smaller company

trusts, yet trading at a 10.2%

discount to net asset value

(NAV) that suggests value

abounds, Henderson Smaller

Companies (HSL) has been

successfully managed by

t r a i n e d a c c o u n t a n t N e i l H e r m o n

since 2002.

Hermon has established a

formidably strong long-term

ƚƌĂĐŬƌĞĐŽƌĚďLJĐŽŶƐƚƌƵĐƟŶŐ

ĂĚŝǀĞƌƐŝĮĞĚƉŽƌƞŽůŝŽǁŝƚŚĂ

ĨŽĐƵƐŽŶŐƌŽǁƚŚĂƚĂƌĞĂƐŽŶĂďůĞ

price (GARP).

In fact, the trust has delivered

NAV total returns of 416% or

17.8% per annum over the last

ƚĞŶLJĞĂƌƐ͘dŚĂƚĐŽŵƉĂƌĞƐǁŝƚŚ

225% (12.5% per annum) for

the benchmark Numis Smaller

Companies ex Investment

Companies Index.

ĚŵŝƩĞĚůLJ͕,ĞŶĚĞƌƐŽŶ

Smaller Companies marginally

underperformed the index in the

year ended 31 May 2019, but

ƚŚŝƐǁĂƐŽŶůLJƚŚĞƐĞĐŽŶĚLJĞĂƌ

in the past 16 that Hermon has

underperformed.

ƵƐŚŝŽŶŝŶŐƚŚĞďůŽǁǁĂƐĂ

9.5% hike in the total dividend to

23p, underpinned by the quality

ŽĨƉŽƌƞŽůŝŽĐŽŵƉĂŶŝĞƐ͛ĞĂƌŶŝŶŐƐ

and marking an impressive

ϭςƚŚĐŽŶƐĞĐƵƟǀĞLJĞĂƌŽĨ

ĚŝǀŝĚĞŶĚŐƌŽǁƚŚ͘

ĞŵƉŚĂƐŝƐŽŶĮŶĚŝŶŐƋƵĂůŝƚLJ

ŐƌŽǁƚŚďƵƐŝŶĞƐƐĞƐǀŝĂďŽƩŽŵͲƵƉ

ƐƚŽĐŬƐĞůĞĐƟŽŶ͘dŚĞŝŶǀĞƐƚŵĞŶƚ

style aims to seek ‘quality

ŐƌŽǁƚŚĂƚƚŚĞƌŝŐŚƚƉƌŝĐĞ͕͛

ǁŚŝĐŚŝŶǀŽůǀĞƐĨŽĐƵƐŝŶŐŽŶ

ďƵƐŝŶĞƐƐĞƐǁŝƚŚ͚ŐŽŽĚŐƌŽǁƚŚ

ƉƌŽƐƉĞĐƚƐ͕ƐŽƵŶĚĮŶĂŶĐŝĂů

ĐŚĂƌĂĐƚĞƌŝƐƟĐƐĂŶĚƐƚƌŽŶŐ

ŵĂŶĂŐĞŵĞŶƚ͕ĂƚĂǀĂůƵĂƟŽŶ

ůĞǀĞůƚŚĂƚĚŽĞƐŶŽƚƌĞŇĞĐƚ

ƚŚĞƐĞƐƚƌĞŶŐƚŚƐ͛͘

REASSURINGLY DIVERSIFIED

dŚĞƉŽƌƞŽůŝŽŝƐƌĞĂƐƐƵƌŝŶŐůLJ

ǁĞůůĚŝǀĞƌƐŝĮĞĚǁŝƚŚŽǀĞƌϭϬϬ

ŚŽůĚŝŶŐƐ͘dŚĞůĂƌŐĞƐƚƉŽƐŝƟŽŶ͕

asset manager Intermediate

Capital (ICP), accounts for a

modest 3.4% of assets.

dŚĞĨƵŶĚ͛ƐƵŶŝǀĞƌƐĞĨŽƌŶĞǁ

ƉƵƌĐŚĂƐĞƐŝƐƐƚŽĐŬƐŝŶƚŚĞďŽƩŽŵ

10% of the UK stock market

and Hermon tends to focus on

the larger more liquid stocks

in the universe. The manager

ŝƐǁŝůůŝŶŐƚŽƌƵŶŚŝƐǁŝŶŶĞƌƐ͕

ĂůƚŚŽƵŐŚŚĞǁŝůůƚŽƉͲƐůŝĐĞ

ƉŽƐŝƟŽŶƐŝŶŽƌĚĞƌƚŽŵĂŝŶƚĂŝŶ

ƉŽƌƞŽůŝŽĚŝǀĞƌƐŝƚLJ͘

As a result, 62% of the

ƉŽƌƞŽůŝŽŝƐĐƵƌƌĞŶƚůLJŝŶ&d^

250 stocks, among them

housebuilder Bellway (BWY)

and infrastructure projects

ƉŽǁĞƌŚŽƵƐĞJohn Laing (JLG),

ǁŝƚŚƚŚĞƌĞŵĂŝŶĚĞƌƐƉůŝƚďĞƚǁĞĞŶ

&d^^ŵĂůůĂƉ;ϮϭйͿĂŶĚ/D

stocks (25%).

GOING FOR GARP

Henderson Smaller Companies

ĂŝŵƐƚŽŵĂdžŝŵŝƐĞƐŚĂƌĞŚŽůĚĞƌƐ͛

ƚŽƚĂůƌĞƚƵƌŶƐďLJŝŶǀĞƐƟŶŐŝŶ

UK-quoted smaller companies,

ĚĞĮŶĞĚĂƐĂŶLJĐŽŵƉĂŶLJ

ŽƵƚƐŝĚĞƚŚĞ&d^ϭϬϬ͘KŶĐĞĂ

ƉŽƌƞŽůŝŽĐŽŵƉĂŶLJĞŶƚĞƌƐƚŚĞ

&d^ϭϬϬ͕,ĞƌŵŽŶ;ŝŶŶŽƌŵĂů

circumstances) has six months to

sell the stock.

Ably assisted by Deputy

&ƵŶĚDĂŶĂŐĞƌ/ŶĚƌŝĂƫǀĂŶ

Hien and analyst Shiv Sedani,

,ĞƌŵŽŶŚĂƐĂŶƵŶǁĂǀĞƌŝŶŐ

HENDERSON SMALLER

COMPANIES TRUST

&hEDE'Z͵NEIL HERMON

d/<Z͵HSL

^,ZWZ/͵792P

/^KhEd͵10.7%

/s/Ez/>͵2.9%

Source: The AIC