Henderson Smaller Companies (HSL) has narrowly outperformed its stock market benchmark for the first time in five years under new lead manager Indri van Hien.
Hien took charge of the £517m investment trust last September following the retirement of Neil Hermon, who had run the listed fund for over 22 years.
Assisted by deputy manager Cassie Herlihy, who joined from Gresham House in November, Hien oversaw an 11.8% total investment return from the portfolio of smaller companies in the 12 months to 31 May, 0.5% behind the 12.3% gain in the Deutsche Numis Smaller Companies index.
However, helped by a second year of big share buybacks by the board, the total shareholder return squeezed ahead of the benchmark at 12.6%.
This is the first time since 2021 that shareholders have received an index-beating return, aided by gearing, or borrowing, of around 10%.
In the rebound from the Covid pandemic, HSL shareholders enjoyed a stonking 69.3% annual return, smashing the 54.1% revival in its small-cap benchmark.
However, the following two years saw the trust plunge 27% and 12% as UK small-caps were sold off as interest rates rose and its growth investment style fell out of favour. It then underperformed in the next two years as the asset class began to recover.
Chair Penny Freer said: “Following a protracted period of underperformance, the fund managers have refined the investment process to strengthen stock selection, while preserving the company’s core philosophy of investing in growth at the right price.”
Freer added the board was “encouraged by the marked improvement in stock selection” as it announced a 21.5p per share final dividend that lifted the total shareholder pay-out for the year by 3.6% to 29p.
Among the top five stock winners for Hien and Herlihy were Balfour Beatty, the construction group benefiting from strong demand in the UK and US, and Computacenter, the technology services provider boosted by customers wanting help with artificial intelligence projects. Engineer Renishsaw and technology group Oxford Instruments also did well.
However, these gains were offset by losses on house builder Bellway, fuel cell manufacturer Ceres Power, Hothschild Mining and litigation financier Burford Capital.
While performance was mixed, shareholders will hope the latest positive annual result will mark a turnaround for the company whose 29% three-year shareholder return lags the Numis benchmark’s 29%. That’s better than the five-year record at 31 May which showed shareholders sitting on a 17.1% loss versus the benchmark’s 17.9% gain.
Today’s annual report highlights the benefit of trusts buying back their shares when they trade well below the net asset value of their investments. HSL’s board repurchased 18.8% of the company’s shares during the year when they traded at an average discount of 9.2%. That added 1.7% to the underlying return delivered by the fund managers, pushing the shareholder return ahead of the index.
HSL’s board was previously resistant to share buybacks which shrink trusts, but has dramatically changed tack, ramping up stock purchases from 8.1% in the 2024/25 financial year. When it resumed buybacks in late 2024, it was the first time in 13 years.
Our view
Matthew Read, senior analyst at QuotedData, said: “The first full year under Indri van Hien’s leadership shows a welcome improvement after a prolonged period of weak performance. NAV rose by 11.8%, broadly matching the benchmark and beating most peers, with notably better stock selection and useful contributions from gearing and buybacks. One year is not enough to declare the turnaround complete, but the refined investment process appears to be gaining traction and provides a stronger foundation for recovery if sentiment towards UK smaller companies improves.”
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