Henderson, who has almost 35 per cent of his Henderson Opportunities Trust in AIM-listed stocks and 7 per cent of Lowland, says that the market is set to become the site of choice for the entrepreneurs of the future.“If you were a good entrepreneur at the moment you would go to AIM for regulatory reasons, tax reasons, that’s where you will find the companies of the future,” he said.
“ASOS is still on AIM. You can find very solid businesses there like you can on NASDAQ.”
“I don’t understand those managers who are less enamoured of the market. You have to have your eyes open, though – its lighter regulatory touch means there will be corporate governance issues.”
As FE Trustnet reported last month, after the Government allowed investors to put AIM-listed stocks in their ISAs, the market surged ahead even of the booming small cap index. Since 5 August, the index is up 22.03 per cent, almost 6.5 percentage points ahead of the FTSE Small Cap.
Performance of indices since 5 Aug
Source: FE Analytics
Increased retail investor interest is being credited as one of the major reasons for this outperformance.
Colin Hughes, Henderson’s co-manager on Henderson Opportunities, says that the changes have had a “rising tide lifting all boats” effect, which hasn’t actually helped the managers’ portfolios too much, but the overall trend is clear.
Some managers, such as Charles Montanaro of the Montanaro UK Equity Income fund, warn that retail investors could be buying illiquid stocks that they will find it very hard to sell on the way down.
Henderson, however says that if investors are selective and do their due diligence then they can pick up some excellent stocks. He cites RWS Holdings and Majestic Wines as two high quality AIM-listed businesses he owns.
Some managers say another main reason for the surge in AIM is a wider smaller companies surge that occurs at this point of the market cycle. Henderson says this smaller companies surge still has a long way to run.
The FTSE Small Cap index is up 71.56 per cent over three years, ahead of the FTSE 250, at 60.78 per cent, and the FTSE 100, at 27.06 per cent.
Performance of indices over 3yrs
Source: FE Analytics
What has been particularly noticeable over the past year is that the funds have been less volatile than the large caps and fell by a smaller amount than the other sectors during the May sell-off last year.
“It’s always at this stage of the cycle that people begin to worry,” Henderson said.
“We all suffer from 'anchoring', because we remember where the share price was, but it’s irrelevant now.”
“What matters is if it’s good value at this level. You have to look at the price afresh.”
Henderson says that the valuations on the UK market as a whole don’t worry him, in contrast to some other high-profile managers who have recently spoken to FE Trustnet.
“I don’t think that valuations are too high,” he added. “Cash generation we are seeing is such that these companies are strong and in our view can keep growing.”
“Unless something from left-field happens, you are going to see good returns and dividend growth.”
A significant rise in the oil price is the thing to watch out for, he warns, which could potentially arise from the ongoing Ukraine crisis if it isn’t swiftly resolved.
“With a significant rise in the oil price, the economy could prove to be very fragile,” Henderson said.
Sterling strength could be a headwind, although the implied lowering of the sterling price of oil could outweigh this effect.
The fund is currently the top-performing UK growth trust over five and one year periods, and third out of 16 over three.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
Henderson says that he views the trust as a “mixer” for investors who have a high weighting to large caps in their portfolio.
As well as the 35 per cent in AIM, it has roughly 20 per cent in the FTSE Small Cap, FTSE 250 and FTSE 100 indices.
Like Henderson’s other funds, it has a high weighting to industrials, which make up 36.96 per cent of the fund.
ITV, Senior and Ashtead are among the fund’s well-known top 10 holdings, while it also has a significant weighting to technology sectors.
It has ongoing charges of 1.13 per cent.
