Henderson Opportunities Trust: Five things that investors need to know

1. Henderson Opportunities Trust seeks growth opportunities across the market

Henderson Opportunities Trust (HOT) aims to achieve long-term capital growth in excess of the broad UK market, with a secondary objective of delivering dividend growth over time. Its all-cap focus gives it the flexibility to seek growth opportunities from across the market, which for many investors would be difficult to replicate. Its relatively small size means it can be nimble when investing in less liquid smaller companies, and its permanent capital base is ideally suited to the long-term, patient approach required. HOT has been managed consistently, over many years, by two experienced investment managers: James Henderson and Laura Foll of Janus Henderson Investors. In turn, they are supported by the broader resources of the Janus Henderson team.

2. The portfolio has a strong bias towards smaller companies

The managers are looking for attractive long-term growth opportunities from what may become tomorrow’s leading British companies. Most often these are smaller or in some cases promising early-stage businesses and many are listed on AIM. Smaller companies can often be under-researched and overlooked, which can provide attractive investment opportunities. Selected larger companies will usually be growing less quickly but are more liquid and less volatile. While HOT’s benchmark is a broad UK equity market benchmark, its portfolio is weighted very differently. The largest 100 companies account for around 80% of the benchmark but less than half of the HOT portfolio. Investors should therefore expect that HOT’s performance may be different to that of the benchmark over the short term.

3. The managers seek well-managed companies with above-average growth prospects

HOT has a selective bottom-up investment approach, with a strong valuation overlay. Henderson and Foll believe strongly that company management is one of the most important factors in identifying possible investments. Good management helps to navigate unexpected challenges and economic headwinds. Poor management is an obstacle to success in the best of times. Interactions with companies are therefore a key part of the stock selection process, with the managers undertaking several hundred meetings and site visits each year. Smaller companies can be riskier and more volatile. HOT seeks to manage this risk through a high level of stock diversification and a meaningful exposure to larger, more established businesses.

4. HOT’s portfolio can be broken down into six buckets

In monitoring the positioning of the trust, the managers group their holdings under one of six classifications or ‘buckets’. In turn, these six buckets are grouped under two broad headings: ‘tomorrow’s leaders’ and portfolio ‘stabilisers’. It is among tomorrow’s leaders that the managers expect to see the strongest growth over time. This group represents almost two-thirds of the portfolio and contains four different buckets, each containing a diverse group of companies, with a wide range of activities, at different stages of their life cycle. Stabilisers are often larger, mature but still growing businesses, with more predictable cash flows, as well as natural resources companies, which provide a hedge against unexpected developments in commodity markets.

5. Small- and mid-cap companies drive HOT’s performance

HOT’s performance is primarily determined by that of smaller and medium-sized companies and especially AIM-listed stocks. Faster-growing smaller companies tend to outperform their large-cap counterparts over the long term, but during the past 10 years this has mostly not been the case. This has been reflected in HOT’s performance versus its benchmark and has only partly been offset by successful stock selection. Larger companies are more established and often have more internationally focused businesses. Smaller companies are more exposed to the domestic UK economy, are less liquid and more volatile, and often respond sharply to changes in investor sentiment.

Published 13 December 2024.