London, UK, 20 November 2023

Edison issues update on Henderson Opportunities Trust (HOT): Patience is bitter but the fruit is sweet

Underpinned by attractively low valuations, the investment managers for Henderson Opportunities Trust (HOT) believe that smaller companies will rally strongly on a turn in market sentiment. Although the timing and catalyst for this is no easier to pinpoint than when we wrote our detailed note in July, in their view, the most likely trigger will be a return to confidence in the UK economy. In this respect, growing indications that the interest rate cycle has peaked, and a more robust domestic economy than implied by smaller company valuations, are positive indicators.

While the last two years have been painful, past recoveries have shown how this can quickly change, and for HOT, this has historically generated strong NAV appreciation and discount narrowing. The managers note that in many cases, valuations already discount a sharp recession and that the breadth of the sell-off has indiscriminately affected many companies with strong management, robust operational performance and good long-term growth prospects. While the timing of a small company recovery is difficult to predict, we believe the potential for strong returns makes HOT an attractive complement to more mainstream trusts, which should more closely track broader market developments. HOT’s size makes it nimble, and its permanent capital base supports a patient approach.

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