Trustnet Magazine, February 2022:
This tech-focused trust is something of an anomaly in that it has close to half its portfolio in UK stocks.
Increases in inflation and interest rates have turned investors away from tech-focused portfolios such as the Herald Investment Trust over the past year.
Yet while technology stocks still have a bumpy road ahead, QuotedData said the trust’s discount – currently at 14% – may represent a buying opportunity for a strategy that has delivered more than double the gains of its benchmark since inception in 1994.
Herald invests in listed companies below $3bn in the telecommunications, multimedia and technology sectors. Although it can invest anywhere in the world, what separates this trust from its techfocused peers is that close to half of its portfolio is in UK stocks.
Rather than just looking for companies with the ability to grow, manager Katie Potts and her team aim to identify businesses capable of making strong returns on capital, or those with earnings growth that will propel them to a single-digit price/ earnings ratio within a reasonable period of time.
“This requires an analysis of a company’s products, markets and competitive position,” said QuotedData; “The team is looking for companies where it can see clear markets for their products and where they have advantages over the competition that mean they are more likely to succeed. These could include superior technology, network effects or barriers to entry.”
Potts believes the tech sector is more defensive than the market appreciates, pointing out the recurring revenues associated with IT infrastructure and applications effectively represent non-discretionary spending.
The impact of rising interest rates on the trust came as no surprise to Potts, and she has long maintained higher-than-normal cash levels to ensure it can exploit buying opportunities when they occur. Herald has made 327.9% over the past decade, compared with gains of 153.2% from its Numis Smaller Companies plus AIM ex ITs index and 97.4% from its IT Global Smaller Companies sector.
Read more here