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‘Exceptional’ year for smaller companies, says Hermon of Henderson
Neil Hermon, manager of the Henderson Smaller Companies investment trust, says smaller companies have led the way in 2012 and are still poised to do well next year.
The numbers speak for themselves as in the past year the Numis Smaller Companies 1000 (+Investment Trusts) index has generated total returns of 15%, bounding ahead of the FTSE 100 8.5% total return.
However, the tough economic conditions mean questions are being raised about the sustainability of company earnings forecasts. Hermon agrees but remains positive about the outlook for the smaller companies in which he invests.
The trust's shares currently trade at 347p, a 19% discount to the net asset value (NAV) per share of 427p. Shareholders have enjoyed total returns of 45% over the past year and 57% over the past five years to outperform the Numis Smaller Companies (excluding Investment Trusts) index total returns of 29% and 38% in the same time periods.
One of the strongest performers in the trust is manufacturing equipment maker Spectris (SXS.L). It is Hermon's largest holding having risen 44% in value so far this year. Hermon is still positive on the stock and thinks it has good growth prospects and potential for margin expansion.
House-builders are also a focus in the portfolio with holdings in Taylor Wimpey (TW.L) and Bellway (BWY.L). Hermon says the government is doing a lot to help the sector, in terms of lending and providing finance for first-time buyers, and he expects good growth and profitability ahead as the businesses buy new high-margin land at cheaper prices.
He also expects house-builders to improve their capital discipline and return more cash to shareholders, as opposed to looking to expand though rights issues in 2013.
Hermon has also recently added conveyor belt-maker Fenner Group (FENR.L) to the portfolio, which despite its challenges in the US, he believes is positioned for further growth.
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