Fund Manager Commentary - Henderson Alternative Strategies Trust



Macro backdrop
Despite several negative news headlines, global equity markets made positive returns and sovereign bond yields rose (Source:Bloomberg). Japanese equities were the standout performer while Eurozone and emerging market stocks suffered modest losses. The technology sector lagged over the month but energy stocks continued to benefit from a rising oil price.

US Treasuries led global bond yields higher (and prices lower) and high yield debt generated positive returns. Emerging market debt posted strong returns across both hard and local currency bonds. Gold remained a drag within commodities as the US dollar remained strong on a trade-weighted basis (Source:Bloomberg). 

September ended with a shock to markets after the Italian government made proposals for significantly more spending than expected when announcing the draft 2019 budget. In the near term, decisions by the credit rating agencies over whether to downgrade Italian bonds will be carefully watched all over Europe. Despite a significant sell-off in Italian assets, both equities and bonds were actually top performers over the month.

Financial markets took an escalation in China-US trade tensions in their stride. The US administration imposed 10% tariffs on a further $200 billion worth of Chinese imports and China responded with tariffs on $60 billion of US goods. Elsewhere, Japanese equities rallied strongly as Prime Minister Abe was re-confirmed as his party’s leader for another three years, retaining his pro-growth and reflation agenda. In the US, the Federal Reserve (Fed) moved interest rates up another 0.25% and increased its expectations for the level of interest rates in the longer term. This helped push US Treasury yields higher, but not enough for further US dollar appreciation.

Fund performance

Over the month of September the fund’s Net Asset Value (NAV) lost -0.5% whilst the share price return was flat.  Over the same period the Company’s Association of Investment Companies AIC Flexible Investment peer group returned -0.5% in share price terms (Sounrce:Morningstar). The FTSE World Index, which the Company aims to outperform over the long-term, returned 0.3% (Source:Bloomberg). 

The largest sector contribution came from Property and primarily our holding in Summit Germany Ltd (“Summit”) which contributed 0.2% over the month. Summit is a commercial real estate company that purchases and manages offices, retail, logistics and other commercial properties throughout Germany. During the month Summit released strong half-year results that highlighted good operating performance, attractive debt re-financings and a new acquisition of a Frankfurt-listed real estate company providing Summit greater economies of scale. 
The Specialist Sector portion of the portfolio detracted 0.3% from performance.  The largest contributor was Sigma Capital Group PLC (“Sigma”), which released good interim results during the period.  Sigma returned 10% which equated to 0.2% contribution. Sigma’s interim results highlighted the fundamental change that the launch of the PRS REIT PLC , which it manages, has had on future growth prospects.  We remain confident that private rental sector property benefits from many tailwinds in terms of a lack of housing affordability, a shortage of housing supply and significant government support.  Sigma remain well-placed to benefit from these trends with the PRS REIT PLC providing significant capital for the company to be a lead player in a growing market.
On the negative side within the Specialist Sector allocation our exposure to financials cost the Company -0.2% in performance.  
Within private equity, Safeguard Scientifics Inc (“Safeguard”) had a tough month down -9.8% resulting in a -0.3% drag on the NAV.
The share price fell as the market was underwhelmed by initial exits made in Safeguard’s liquidation process.  After discussing the remaining portfolio with the CEO, we continue to believe Safeguard Scientifics Inc has fundamental value and expect to see the share price perform well as Safeguard continues to realise the rest of its portfolio.  This weakness was largely offset by strong returns from our listed private equity holdings.
After a strong run in our infrastructure names post the John Laing infrastructure Fund Ltd bid, these names steadied over September. We continue to hold these names tactically, believing investors will re-allocate their proceeds from the John Laing takeover to other infrastructure investments.
At the time of writing, market volatility has increased significantly.  We have used this volatility to top-up positions in both Worldwide Healthcare Trust PLC and Polar Capital Financials Trust PLC.   
In addition we have established two new positions.  First, we have undertaken significant work looking into litigation finance as an emerging asset class.  The market sell-off in early October provided a good entry point for us to open a position in Burford Capital Ltd.  Second, we see good value in Euro Stoxx 50 Dividend futures, believing we can generate double-digit returns with less volatility than equities.  
Financial markets continue to face several challenges, including tightening monetary policy, trade tensions and populism. There has been a degree of re-pricing to reflect these risks but, in our view, share price valuations, particularly in the US remain elevated.  We also believe that investors will have to adjust to greater volatility going forwards. At this stage of the market cycle, missteps by policy makers are likely to be more keenly felt.  Global growth remains solid for now and this should support risk assets but we are becoming increasingly cautious.  We remain vigilant and will look to react accordingly.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. 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.

The information in this article does not qualify as an investment recommendation.

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Henderson Alternative Strategies Trust plc

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.

Past performance is not a guide to future performance. 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.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • The trust may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe and an adverse event impacting only a small number of holdings can create significant volatility or losses for the trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • Global portfolios may include some exposure to Emerging Markets, which tend to be less stable than more established markets and can be affected by local political and economic conditions, reliability of trading systems, buying and selling practices and financial reporting standards.
  • 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.
  • Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.
  • In certain circumstances the investment manager may not be able to sell investments from the trust's portfolio. This could have a negative impact on the overall performance of the trust.

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