During June, the Trust’s net asset value fell by 0.3% on a total return basis whilst its benchmark, the FTSE All-Share rose by 0.2% – marking a relative underperformance of 0.5%. The Trust’s share price also underperformed the net asset value; falling by 12.6% over the period. As a result, the discount of the share price to net asset value materially widened. This Trust was not unique within the UK All Companies peer group in seeing its discount widen, and it is always difficult to precisely determine the contributing factors to a movement in a Trust’s discount (or premium). There could be an element of seasonality to demand following the end of the tax year. There could also be an element of profit taking from some shareholders – following a year in which net asset value grew strongly and the discount to net asset value narrowed relative to the Trust’s historic average. The Trust has a Continuation Vote every three years, the last of which was in 2020 and shareholders voted strongly in favour of continuation. The Trust also has the authority to buy back shares and used this authority in the last financial year.

During the month, we participated in three placings for the Trust (Revolution Bars, Westminster Group and Kier Group). Over the last year, many companies have used the equity market to successfully raise money for a variety of reasons. In this case, Revolution Bars was raising money in order to reduce debt and refurbish a number of their bars, Westminster Group had won new contracts that required upfront investment, and Kier Group wanted to reduce debt ahead of a strong pipeline of contracting work. A vehicle such as HOT, that has a flexible mandate and is able invest across all sizes of listed UK businesses is well placed to take advantage of these placing opportunities where they arise. We also added a new position in Tesco during the month, as a result of its strong free cashflow generation and market leading position.

We continue to be encouraged by what we are hearing from companies of current trading conditions. In many cases, companies are reporting sales that have already recovered to (or in some cases are above) 2019 levels. This strength, aside from in the most affected areas such as civil aerospace, is broad across a number of end markets including advertising, construction and areas of consumer spending (such as car and home sales). This is a faster recovery than we, and many companies, were anticipating. This recovery comes at a time when many companies had substantially reduced costs during the peak of the pandemic last year, therefore, there could be a faster than forecasted earnings recovery if current trading levels are sustained.  However, this will depend on several factors including the final stages of ‘opening up’ the domestic economy, the progression of unemployment levels as the furlough scheme begins to wind down, and consumer willingness to spend their excess savings built up over the course of the pandemic.

Continuation vote Expand

An investment company’s articles of association often provide for shareholders to vote on whether the company should continue to exist. This is known as a continuation vote.

Discount Expand

When the market price of a security is thought to be less than its underlying value, it is said to be ‘trading at a discount’. Within investment trusts, this is the amount by which the price per share of an investment trust is lower than the value of its underlying net asset value. The opposite of trading at a premium.

Free Cash Flow (FCF) Expand

Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Net asset value (NAV) Expand

The total value of a fund’s assets less its liabilities.

Share buyback Expand

A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market.

Premium Expand

When the market price of a security is thought to be more than its underlying value, it is said to be ‘trading at a premium’. Within investment trusts, this is the amount by which the price per share of an investment trust is higher than the value of its underlying net asset value. The opposite of discount.

Annual performance (cum income) (%)

Discrete year performance % change (updated quarterly)

31/03/2020 to 31/03/2021

29/03/2019 to 31/03/2020

30/03/2018 to 29/03/2019

31/03/2017 to 30/03/2018

31/03/2016 to 31/03/2017

Share Price

121.9

-32.2

1.3

3.4

22.0

NAV

91.6

-28.0

-0.1

8.8

14.4

All performance, cumulative growth and annual growth data is sourced from Morningstar

References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Janus Henderson Investors, one of its affiliated advisor, or its employees, may have a position mentioned in the securities mentioned in the report.