Law Debenture's managers spent much of 2025 banking profits on stocks that delivered and are redeploying the proceeds into unloved corners of the market they think the rally has left behind.
The trust, run by James Henderson and Laura Foll of Janus Henderson, posted a net asset value (NAV) total return of 28.4% for the year, beating the FTSE All-Share's 24% and extending its record of outperformance to 21 of the past 26 years, as it announced today in its annual report.
Performance of fund against index and sector over 1yr
Source: FE Analytics
The headline portfolio move was a significant reduction in Rolls-Royce, the trust's largest holding for much of the past three years. The managers had built the position when the engineer was trading at roughly one times turnover, battered by Covid and questions over its balance sheet. They sold £24m worth of shares during the year, though retain an £18.7m position. "A few years ago you could buy Rolls-Royce for roughly 1x its turnover," they noted. "Today it trades on approximately 5x."
A similar logic applied to Babcock. Shares in the defence contractor more than doubled over the year and it was among the top five contributors to performance but the managers trimmed the holding, arguing the improved outlook for defence spending is now largely priced in.
Banks remained the single largest sector position at 13% of the portfolio, with Barclays, HSBC and Standard Chartered all featuring among the top five contributors. The managers took modest profits but held on, citing ongoing potential from dividends and buybacks.
The proceeds were directed primarily into commercial property. The trust initiated new positions in British Land and Segro, and added to existing holdings in business premises provider Workspace and developer Hammerson. Henderson and Foll also bought into two listed infrastructure trusts – Greencoat UK Wind and HICL Infrastructure – applying the same logic: shares trading at steep discounts to book value while paying attractive dividend yields. "There is currently a disconnect in the sector between the operating conditions, which are generally strong, and the share prices," they wrote.
The UK weighting edged up to 89.9% from 87.6%, with the managers describing UK equities as offering "superior value" despite the year's strong run. They remain buyers, pointing to continued M&A interest from overseas acquirers as evidence that the discount has not closed.
Not everything worked. Online sports betting and gaming operator Flutter Entertainment was the largest detractor, falling 19% as the pace of US gambling legalisation disappointed. Building materials suppliers Ibstock and Marshalls suffered from weak housebuilding activity, though the managers added to both on the expectation of an eventual recovery. Public relations firm WPP was sold at a loss in April at £5.70 after the managers concluded that rivals such as Publicis were taking structural market share. The shares ended the year at £3.38.
The trust's total dividend for 2025 was 35.5p per share, a 6% increase and the 47th consecutive year in which it maintained or grew its payout.