Herald Investment Trust (HRI) announced its half year results for the period ended June 30 2023. NAV for the company fell 0.3% while shares fell 1.8%, outperforming the Numis Smaller Companies Index which fell 1.8%, although the Russell 2000 Technology Index was up more than 16%.
Herald operates a global portfolio with exposure to several different regions and the manager highlighted the divergence of returns over the past six months, focusing on internal rates of return. The UK has been particularly poor (return of -11.5%), North America particularly good (+21.4%), Asia satisfactory (+7.5%) and EMEA a small decline (-3.0%). However, there is also a stark divergence between the holdings which exceed $3bn market capitalisations and those below. In every region the returns from these larger companies are both positive and significantly better than the overall returns with this difference largely reflecting the collapse in liquidity in the smaller companies market. The manager did note that the poor UK performance reflects stock market conditions more than poor investee company fundamentals, as reflected in a 8.4% decline in average P/E, and that only three stocks of significance have had issues on a fundamental basis.
Regarding the company’s outlook, chairman Andrew Joy commented:
“The geopolitical and economic environment remains disturbing, which the weight of government debt to be financed globally overhangs. Nevertheless, in an environment of limited global growth with the probability of recession as major economies adjust to higher interest rates, our canager continues to believe that the TMT sector has strong relative attractions. A good example would be the positive returns for the company from its exposure to the beneficiaries of potential artificial intelligence growth. As a result the board continues to view the medium-term prospects with confidence.”
HRI – Stable returns for Herald despite market divergence