Profile: Henderson Smaller Companies
At a time when manager turnover on investment funds is getting faster, he has been running the Henderson Smaller Companies trust for 14 years and has proved himself a capable steward, delivering a return of 169% for his investors over the past five years.
The trust is relatively large for a smaller companies fund at £475.48 million. This has seen Mr Hermon invest more in medium-sized companies than true ‘small’ companies, though he retains a 20% weighting in small and Aim-listed companies. Aim (formerly the Alternative Investment Market) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the main market.
Mr Hermon and his compact team of two other fund managers, notch up around 400 meetings with companies per year. Within those companies, he is looking for capable management teams, a strong economic franchise, good cash flow and a company with momentum that is increasing its revenue reliably over time. When he finds them, he holds on to them, usually keeping them in his portfolio for at least five years.
For a smaller companies fund, the trust offers a reasonable income – 2.36% currently. Among its top holdings is NMC Health, the largest private healthcare provider in the United Arab Emirates, which is expanding into the long-term care market in Saudi Arabia. It also holds more domestic names, such as Paragon Group, one of the UK’s largest providers of mortgages and personal loans. These were hit hard by the recent Brexit vote, but Mr Hermon has been topping up in certain areas, such as housebuilders.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.