Fund Manager commentary - Henderson Alternative Strategies Trust

21/08/2019

Download

Market commentary – July 2019

Unless otherwise stated, returns are MSCI price indices expressed in local currency terms. UK equity market performance is represented by the FTSE All-Share Index in GBP.

Performance across global assets in July was more muted compared to a very strong June. Global stock markets finished the month almost flat, driven by the UK market (+1.0%) as a weaker sterling propelled export-focused multinational equities in the FTSE All-Share. In the US, the S&P 500 (+0.7%) reached all-time highs. Global government bonds posted modest gains, with strength in European bonds and UK Gilts offsetting mild weakness in US Treasuries. July was a good month for precious metals, however, other commodities were down including oil, hit by softer demand and growing tensions in the Persian Gulf.

In the UK, Boris Johnson won the leadership of the Conservative Party, propelling him to the post of Prime Minister. In reaction to this, sterling was the worst-performing currency of the month, with a potential “no-deal” outcome being increasingly reflected in the currency. However, the current configuration of parliament has demonstrated that it is not willing to allow the UK to leave the EU without a deal and to do so would thus likely require either a general election or a fresh referendum.

On the last day of July, the US Federal Reserve (Fed) cut rates by 0.25% for the first time since 2008. The move had widely been priced in by the markets, but those participants pricing in a much larger cut of 0.50% were disappointed. The Fed also opted to end its balance sheet runoff effective of the date of the meeting rather than at the end of September. Overall, the US economy is stable and remains one of the stronger economies globally. Over the month, the US jobs market bounced back from weak data in June and the second-quarter GDP numbers beat analyst expectations.

Christine Lagarde was nominated to take over from Mario Draghi as the leader of the ECB this November. For many investors, the appointment signals a continuation of accommodative policy, further reiterated during the ECB governing council meeting as members strongly hinted at another easing package by the end of the year. Additional rate cuts, as well as a revival of the asset purchasing scheme (quantitative easing), could still happen. High grade corporate debt would likely be targeted as part of further asset purchases, which prompted European credit to rally strongly.

Performance and activity

Over June the fund’s Net Asset Value (NAV) gained 1.6%, the share price fell 2.5%, and the Company’s Association of Investment Companies (AIC) Flexible Investment peer group returned 2.3% in share price terms (source: Morningstar). The FTSE World Total Return Index, which the Company aims to outperform over the long-term, returned 4.4%.  The Company’s NAV is up 6.6% for the year at end July 2019.     
During the period the Company benefitted from its overseas currency exposure as sterling depreciated due to the chance of a hard-Brexit increasing.  The Company’s benchmark was up 4.4% in sterling and 1.1% in local currency terms.  The Company’s positions reflected this, generating significant gains from overseas currency exposure. 
All asset classes generated positive performance.  Private equity was again the highest contributing sector with HarbourVest Global Private Equity Ltd rising 6.6% and contributing 0.2% to performance.  The asset class contributed 0.6% in total.
Public equity that was flat on the month.  Positions in Burford Capital Ltd and Euro Stoxx dividend futures offset positive contributions, mainly from healthcare positions.
At the start of July a 1% position in Augmentum Fintech PLC was added.  Augmentum focuses on early-stage investing in fintech companies within Europe.  Augmentum has a number of fundamentally attractive holdings including Interactive Investor and Zopa. We see a potential positive valuation catalyst for Interactive Investor due to the acquisition of Alliance Trust Savings.  We are also positive on Zopa with its main business in peer-to-peer lending, an area attractive to many lenders in the current interest rate environment. Zopa also acquired a banking license in 2018 which facilitates growth into related markets and greatly increases its addressable market.   
During the month we increased our position in the CIFC Global Floating Rate Credit Fund.  We have historically invested in listed collateralized loan obligation (“CLO”) funds that invest in the equity tranches of CLOs.  We have reduced our exposure over recent years but have added CIFC due to its more conservative nature.  CIFC invests in the debt tranches of CLOs rather than the equity and is currently positioned towards higher credit qualities.  The fund aims to pay a dividend yield between 6 and 7% and generate a total return of 8%.  We have noted historically that the listed funds can become illiquid when liquidity is most needed and CIFC provides us the benefit of having weekly liquidity.
We have minimised selling activity within the fund, most purchases having been made from cash.  We have however taken the decision to trim our position in Axiom European Financial Debt.     


Outlook

Since falling sharply in May, world equity markets have recovered strongly.  Two key reasons are apparent. First, central banks have become more dovish, suggesting that financial conditions will remain favourable.  This has driven a sharp re-pricing of interest rates and increased the attractiveness of equities.  Second, recent comments from Trump and Xi suggest that they will meet at the G-20 Summit at the end of June which has spurred hopes for a trade war truce.

We believe that after the sharp rally in the first half of 2019 that returns will be muted in the second half.  The markets are pricing in significant action by world central banks leaving little room for markets to be surprised on the upside.  Whilst it is positive that Xi and Trump are meeting in person we are not convinced that we are past trade war volatility in the markets.  Last of all we also note that world economies have weakened in 2019 and this has been reflected in earnings estimates.   

Glossary

Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down.

Liquidity: The ability to buy or sell a particular security or asset in the market. Assets that can be easily traded in the market (without causing a major price move) are referred to as ‘liquid’.

Quantitative Easing: An unconventional monetary policy used by central banks to stimulate the economy by boosting the amount of overall money in the banking system.

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.

For promotional purposes.


Important information

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.
  • 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.

Risk rating

Share

Important message