Recent comments from Ben Bernanke suggest that the Fed will taper its bond buying programme later this year and grind it to a complete stop in 2013. The announcement caused chaos in the markets, with the S&P 500 and FTSE 100 both shedding around 3 per cent. The FTSE fell to its lowest level since January this year and at the time of writing is at 6,196 – having surpassed 6,800 just a few weeks ago. That has taken out a chunk of the returns made so far this year, as the graph below shows.
Performance of index year to date
Source: FE Analytics
However Henderson, who manages the Lowland Investment Company and Henderson UK Equity Income, says trying to predict what will happen next is a futile exercise.
He told FE Trustnet last year that his outperformance stems from listening “politely” but subsequently “ignoring” everyone else’s macro views on the economy. Henderson says this approach is more important now than ever before.
“My strategy is all about bottom up stockpicking,” he said. “Obviously I am aware of what Mr Bernake has said, but I don’t to things like that and instead I try and focus on a stock fundamentals and a company’s management team.”
“I certainly don’t try and make any calls on macro-economics. I just think there are so many variables. When if you are looking at a company – over the medium term – there are fewer variable factors.”
“Of course, anything could happen to a short term share price. However, over time the company with something unique and an improving competitive position should deliver returns over time as it is re-rated by the market,” he added.
Some managers will have undoubtedly seen yesterday’s sell-off as a chance to add to their holdings or buy new holdings that were previously out of their price range; however Henderson says he avoids that strategy.
“I don’t think short term dealing really adds anything. You may want to add to a one of two holdings, but I wouldn’t say you can really change your long term performance by buying more on a weak day,” he explained.
FE Alpha Manager Henderson runs the Lowland Investment Company, Law Debenture IT, the Henderson Opportunities Trust and the open-ended Henderson UK Equity Income fund.
He has run the £359m Lowland trust for the longest, having taking over the management position in 1990. According to FE Analytics, his style has clearly worked over the long run.
The earliest FE data goes back to January 1995 and over that time the Lowland Investment Company has returned 556.63 per cent, while its benchmark – the FTSE All Share – has returned 296.39 per cent.
Performance of trust versus index since January 1995
Source: FE Analytics
The closed-ended fund has also considerably beaten the index and has been one of the top three best performing portfolios in the IT UK Growth & Income sector over a one, three, five and 10 year period.
His Law Debenture IT has been a top quartile performer in the IT Global Growth sector over one, three, five and 10 years. Also, his Henderson UK Equity Income fund and Henderson Opportunities Trust have consistently beaten their respective benchmarks and sector averages since he has been at the helm.
Henderson says that he maintains a multi-cap focus within all of his portfolios.
“Within the bottom-up stock picking approach, we feel that over time medium to smaller sized companies can add more capital and income growth,” he said.
In his Lowland Investment Company, he holds UK blue chips such as Royal Dutch Shell, GlaxoSmithKline and BP within his top-10 holdings. However, his two largest individual assets are Senior – which is a FTSE 250-listed manufacturing and engineering holding company – and the micro-cap manufacturer Carclo.
Henderson says he tries to locate recovery or special situation-style stocks, before their story is known by the wider market. He says this has led him to FTSE Fledging company Renold.
“One of the out-and-out recovery stocks we have been building up over recent months has been Renold,” he said. “It is a chain manufacturer, but these are big heavy chains that are used in the underground, for instance.”
“It is quite a bespoke company, but it has had a change in management team and they are attempting to change the business model. That should hopefully lead to improved earnings and then hopefully an improved rating,” he added.
Investors in Renold would have lost over 60 per cent if they bought the company five years ago. However, so far this year the stock has returned nearly 20 per cent – albeit with a high degree of volatility.
Performance of stock year to date
Source: FE Analytics
Henderson’s Lowland Investment Company has a yield of 2.01 per cent. The trust is trading on a 0.13 per cent discount, which is wider than its three year average of 4.62 per cent.
The trust is 16 per cent geared and has ongoing charges of 0.65 per cent. However, it does charge a performance fee.