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.
7 minute read
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 Small Cap||117.8%|
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.
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.
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.
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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.
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- 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.
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