Fund Manager commentary - Henderson Alternative Strategies Trust

16/05/2019

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Unless otherwise stated, returns are MSCI Indices expressed in local currency terms. The return for the UK equity market uses the FTSE All Share Index in local currency terms.


Global equities continued to move higher, rising 3.4% in US dollar terms and 3.3% for sterling-based investors. Eurozone equities led the way, helped by German stocks. Japanese equities were the biggest laggard, rising 2.0%. Growth and quality styles continued to lead the way, although financial stocks led the way in sector terms. US healthcare companies were negatively impacted by political rhetoric.


Sovereign bond yields broadly rose, with UK gilts one of the largest movers. Credit spread compression led to corporate bonds delivering positive returns led by high yield, where spreads have retraced most of the widening seen in late 2018. Emerging market debt saw more mixed performance. The oil price continued to rally, rising over 6% during the month, while currency movements were fairly muted overall.


The S&P 500 index drifted quietly to a new all-time high late in April, accompanied by a general easing in investor concerns and mirrored by the decline in the VIX Index. Investors have taken comfort from a few green shoots of economic improvement, although it still remains unclear what scale of rebound should be expected. The weaker growth outlook has kept central banks in cautious mode, maintaining conditions for strong returns from risk assets generally. Reporting season is seeing companies broadly exceed expectations, helping sustain the rally.


The deadline for the UK leaving the European Union was again extended, to 31 October. However, the UK may leave earlier if an agreement can be reached although it must now, in all likelihood, take part in the European Parliamentary elections, despite an ‘imminent’ Brexit. The elections are expected to spell a heavy defeat for the Conservative Party and uncertainty continues to be a concern for the UK corporate sector as firms seek to invest for the future, without a clear picture of the operating environment.


Performance and activity


Over the month of April the fund’s Net Asset Value (NAV) gained 0.6% whilst the share price return was 2.6%.  Over the same period the Company’s Association of Investment Companies (AIC) Flexible Investment peer group returned 1.5% in share price terms (Source:Morningstar). The FTSE World Index, which the Company aims to outperform over the long-term, returned 3.5%. A relative underperformance of 0.9% in share price terms (Source:Bloomberg) and 2.9% in NAV terms.     
The best performing sector during the period was private equity. Our holdings in listed private equity investment trusts contributed the majority of this return. 3i Group performed well as the market built in positive results to be announced in May with high expectations on it largest position ‘Action’. We trimmed back on the holding throughout the month as 3i began reaching historical premium highs. Harbourvest Global Private Equity Ltd also continued its rally in April outperforming global equity markets.  Safeguard Scientifics Inc had a good month and markets reacted positively to its results as it again highlighted their focus on trying to liquidate positions at significant uplift to carrying value.
The credit sector generated positive returns. The majority of this came from Axiom European Financial Debt Fund Ltd. The fund invests in a diversified portfolio of regulatory capital securities issued by European Financial institutions and seeks to benefit from investment opportunities presented by the Basel III and Solvency II transitions in Europe.

Property was the only sector which was negative during the period. This was in its entirety driven by our (legacy) holding in Ceiba Investment Ltd. The company re-listed late last year and despite solid underlying performance, the discount has continued to widen. Sentiment is relatively poor due to tighter US sanctions on Cuba. Summit Properties Ltd recovered further from its fall in the prior months. We took some profits but the underlying story remains strong.
The commodity, hedge fund and public equity sectors were approximately flat for month. Worldwide Healthcare was the only significant detractor in our public equity sector. The holding was hurt by political noise and has since recovered relative to the wider market. This was balanced by our holding in Eurostoxx 50 Dividend Futures which rallied with equities. The only holding which detracted from performance within the hedge fund sector was Majadie Tortortise but again Blackrock European Hedge Fund made the majority of this back for HAST and the pair continue to work in an uncorrelated fashion to each other. Within the hedge fund sector we also topped up our holding in Sagil Latin American Opportunities Fund.


Outlook


The rally in risk assets since December’s lows has taken many equity indices back to the levels seen in mid-2018. US and emerging market equities now look relatively expensive, while credit spreads have contracted towards the post-2008 lows. Similarly, the 10-year US Treasury has returned to levels seen 18-months previously when interest rates were 1.25% lower. Such a market backdrop makes investing more difficult as returns are likely to be lower. Policy makers have pushed most assets back into expensive territory and investors need to remain vigilant. A more flexible, actively managed approach can look to benefit from the pockets of value that remain while, at the same time, avoiding expensive pitfalls.

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

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.
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