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Henderson Opportunities Trust – Investing in tomorrow’s leaders

The UK market is full of small, innovative, and agile businesses that can navigate challenging times while positioning themselves as the industry leaders of tomorrow. Here, we look at how Oxford Nanopore, Ceres Power and Zoo Digital are leading the charge within their industries.

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When considering investing in the UK market, many people tend to rely heavily on the overall state of the economy to guide their investment decisions. This is especially common when it comes to UK small cap stocks, which are perceived to be more cyclical and dependent on the domestic market. So when the UK economy is not doing well, people assume that smaller companies will struggle – a sentiment reflected in their recent underperformance.

While macroeconomic conditions may impact the overall market, they do not dictate the growth potential of these smaller businesses. Even when the economy is struggling, these companies are autonomous and have the power to shape their own futures. Backed by skilled management teams that can navigate challenging times, they tend to have more control over their destinies than they are given credit for. And their resilience is reflected in their performance in what has proved to be a challenging decade (see table below).

UK stock market performance over the last decade (with dividends reinvested)
FTSE 10078.7%
FTSE 25080.5%
FTSE Small Cap117.8%
FTSE AIM33.3%

Source: Bloomberg as at 30/04/2023

At Henderson Opportunities Trust, we believe in identifying and investing in visionary companies with the potential to be tomorrow’s market leaders. As such, it is essential to look beyond the macroeconomic conditions and recognise the true potential of these innovative companies, which are capable of making a significant impact in the world. The development of the Oxford/AstraZeneca vaccine is an excellent example of the immense potential of small-cap stocks to make a global impact. And many smaller companies in the UK market are innovating and leading the charge in their various sectors.

Innovation in healthcare

The healthcare sector is undergoing a significant transformation, with UK smaller companies like Oxford Nanopore Technologies pioneering innovative solutions in genomics. During the Covid-19 pandemic, Oxford Nanopore’s MinION technology, which uses nanopore sequencing for rapid genetic analysis, showcased the potential to revolutionise the diagnosis and treatment of genetic diseases. Its accuracy and portability make it ideal for use in remote locations and developing countries, helping the UK’s genomics industry flourish.

Oxford Nanopore’s other devices, such as PromethION and GridION, offer increased sequencing capacity and throughput. The company’s revolutionary technology, robust funding, and strong partnerships position it as a potential leader in transforming the healthcare landscape for generations. By pushing boundaries and addressing complex medical challenges, we believe that Oxford Nanopore has the potential to transform the healthcare landscape for generations to come and could be a leader in this space.

Innovation in energy

As the world urgently seeks cleaner, sustainable energy sources, our portfolio company, Ceres Power, is leading the charge with its innovative SteelCell® fuel cell technology. This efficient, cost-effective solution generates electricity and heat with lower environmental impact and has versatile applications in power generation, heating systems, and electric vehicle charging. As a result, Ceres Power’s SteelCell® technology has a significant advantage in the energy industry as it can be used as a cleaner alternative to traditional fossil fuels.

The company has also formed partnerships with leading organisations, such as Weichai Power, Bosch, and Doosan, to develop and commercialise its products, putting it in an ideal position to capitalise on the growing global trend towards reducing carbon emissions. With a strong track record of successful partnerships and joint ventures, Ceres Power has a solid financial position, a well-experienced management team that delivers value to shareholders, and a technology that can significantly reduce carbon emissions.

Innovation within media

The media industry is another corner of the UK market where smaller companies are carving out a niche for themself. Zoo Digital Group is a UK-based company with a compelling investment opportunity, specializing in localization and media services for the global entertainment industry. The company is well-positioned to benefit from the growing demand for localized content and the expansion of streaming platforms. Key factors contributing to Zoo Digital’s appeal include its international market expansion, technology-driven solutions, experienced management team, and strong financial performance. As the company continues to innovate and maintain its competitive edge, it is expected to capitalize on growth opportunities in the entertainment industry.

Furthermore, Zoo Digital’s niche expertise and strong market position make it an attractive acquisition target for larger media companies or localization service providers. This potential for M&A activity presents additional upside for investors. With the global entertainment industry experiencing significant growth, driven by the rising popularity of streaming platforms and demand for localized content, Zoo Digital presents a unique investment opportunity for investors looking to capitalize on this growth and the company’s expertise in language services.

Conclusion

Though UK smaller companies have struggled in recent years, we believe much of that performance does not reflect the underlying fundamentals of these companies. UK small caps are home to so much innovation and have shown resilience in challenging market environments. These companies have the potential to disrupt traditional industries and create significant value for investors over the long term. Those looking to capitalise on the opportunities provided by these exciting companies must look through the noise and pay attention to the underlying fundamentals of these businesses. They are more resilient than they are given credit for and offer an exciting and diverse investment landscape to capture long-term growth.

Glossary

Cyclical – Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.


Disclaimers:

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

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Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
  • Some of the investments in this portfolio are in smaller company shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.