Henderson Opportunities Trust (HOT) has published its annual report.
In a difficult backdrop for smaller companies, HOT says that it has been a very disappointing year for the company in both absolute and relative terms. HOT reported a NAV total return of -9.3% and a share price total return of -12.2%. Over the same period, the company’s benchmark, the All-Share Index, rose by 5.9% and the 250 Index of medium-sized companies fell by 1.3%.
During the year, HOT’s discount to NAV ranged from 20.2% to 7.2% and finished the year at 16.4%. The investment manager believes this was largely reflective of the widening average discount levels seen across the investment trust sector as a whole, as the AIC UK All Companies sector finished the year at an average discount of 13.9% and the AIC UK Smaller Companies sector finished the year at an average discount of 15.4%.
The company’s fund managers view HOT’s performance to be driven by poor sentiment, particularly for smaller companies rather than a fundamental reflection of the health of UK companies. They say that smaller companies have been under intense pressure due to rising interest rates, leading to falling share prices. The combined effect is that the valuations of many AIM stocks are now very low. HOT’s fund managers do not believe that these valuations reflect the prospects or potential of the companies held in the portfolio, noting that overall these companies have been operating satisfactorily, with many reporting growing earnings and dividends.
In her statement, HOT’s chair, Wendy Colquhoun said: “The period under review has undoubtedly been a very challenging one for the company. As uncertainty about the economy persists, many good quality smaller companies, with sound long-term plans, are trading on very undemanding valuations. However, we know that stockmarkets are cyclical and this gives us confidence that today’s valuations will at some point be the basis of good future returns. In due course (and if this is not already starting to happen) the UK market will anticipate a recovery of the economy and smaller company share prices are likely to rebound. The company’s portfolio of quality companies is well positioned to prosper in these circumstances and the board shares the fund managers’ belief that there is considerable potential for gains in coming years when the current clouds affecting the economic outlook eventually clear. This should benefit shareholders over the medium to longer term.”
HOT: Tough year for Henderson Opportunities Trust