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The turnaround trust on a 20% discount
Ian Barrass has spent three years overhauling Henderson Alternative Strategies Trust and says the 'fund of funds' is ready to deliver.
Ian Barrass, lead manager of the Henderson Alternative Strategies Trust (HAST ), has spent three years overhauling the 'fund of funds' which Henderson took over from SVM Asset Management in 2013.
In this video interview Barrass explains that HAST's performance was hurt by its previous holdings in emerging markets and commodities funds. Its shares trade 20% below net asset value but could be re-rated if Barrass hits his target of achieving 8% annual returns.
HAST invests in funds that private investors would struggle to access on their own. For example, its top holding is the BlackRock European hedge fund, which did very well last year under Alister Hibbert, the Citywire A-rated manager of BlackRock European Dynamic .
Although HAST has very little commodities exposure, Barrass picks one London-listed oil & gas investment company he thinks will do well.
Can't watch now? Read the script
Gavin Lumsden: Hello, with me today is Ian Barrass lead manager on the Henderson Alternative Strategies Trust? Ian, thanks very much for coming in.
Ian Barrass: Pleasure.
GL: Now I expect some of our viewers might roll their eyes at the word ‘Alternative’ on the basis that there is nothing new under the investment sun. So could you start by telling us, what it is that Henderson Alternative Strategies does?
IB: The purpose of the trust is to try and exceed long-term global equity returns but by investing in a portfolio of alternative and specialist asset funds and those can either be listed or unlisted funds, but they must be of good quality and they must be niche or are hard to access, which our shareholders wouldn’t necessarily invest in directly themselves.
GL: Now I understand you’re trying to achieve a performance from the portfolio that will average around 8% a year over a three-year period. If we look at the past three years that hasn’t happened, obviously, the shares are down around 10% so what’s been the problem?
IB: Well we inherited the management of the fund in April 2013. It had been run for over 20 years previously by another manager and the fund had actually hit some performance difficulties and the board of the fund actually put it out to tender, the investment management contract, and Henderson won it.
But there were issues with it or it wouldn’t have been put out to tender. In particular the fund quality was very varied that we inherited, some of the portfolio was very illiquid, subsequently has been difficult to sell and recycle the proceeds. But also when we inherited the fund it was positioned very much towards emerging markets, nearly half the fund was exposed to emerging markets assets, and within that quite a significant degree of commodities exposure and really over the last few years those asset classes, emerging markets and commodities, have been hit very hard.
GL: So you’re creating a core portfolio and you’re running down this legacy bit you inherited.
IB: And we very much finished the process now, it’s taken nearly three years.
GL: Can I ask you about the top holding in the core portfolio? It’s the BlackRock European hedge fund …
IB: That’s right
GL: … representing 7% of assets. Tell us about that because that’s run by Alister Hibbert, who’s a manager that some of our viewers might remember, who runs the BlackRock European Dynamic fund. It’s not an investment trust, it’s an open-ended fund, but it’s done very well.
IB: Yes, well we invested in the hedge fund that Alister runs. A lot of our shareholders wouldn’t normally invest in a Cayman Islands registered hedge fund.
GL: No, sounds a bit scary! How’s it performed?
IB: It’s performed excellently. During 2015 the return has been around 35% and it’s a great testament to the fund manager’s ability. And the strategy is a long-short strategy, it’s the difference between the hedge fund that we interested in and Alister’s long only fund.
GL: So by shorting it can sell things it doesn’t own, take a profit when things are falling. People are being very scared of the China slow down and that things may be slowing down in the US as well. What’s your feeling?
IB: I think our feeling overall is that in spite of the very harsh start to the year on the markets, we look very much at two markets. First of all we’re very much more positive about the developed markets, in particular still the US, the Eurozone and Japan. We think the macro-economic outlooks for those particular areas are still relatively positive. And although we expect quite a lot of volatility in those equity markets, we also anticipate that there should be some modest but certainly positive gains from those markets during the course of this year.
GL: Can we try and end on a positive note then. Out of all your portfolio could you pick up one fund that you’re particularly interested in at the moment, that you think might do well?
IB: Yes, well there is one actually that is particularly interesting. It’s called Riverstone Energy and it is a UK-listed fund that is managed by a private equity firm based in the US. They have a lot of experience of investing in the US oil and gas sector.
GL: The oil and gas sector has been absolutely hammered! Are you thinking the oil price has dropped below 30 dollars a barrel, if not below, are you betting that it will bounce back?
IB: We have a very limited exposure to oil and gas and other resources. We reduced exposure to commodities drastically in the past couple of years to protect the fund’s NAV [net asset value]. But Riverstone is particularly interesting because they invest in the oil & gas shale sector, particularly in the US. And they’re actually deploying most of their capital the fund raised as oil prices have been falling since Q4 2014. So they’re getting the benefit as they invest in those markets of buying assets in a lower oil price environment and we think on a two-to-three year view, if the oil price in particular does pick up again, they could be buying assets now at very attractive prices. And one of the key things in private equity is you’ve got to buy well, buy when prices are low.
GL: OK, well that’s obviously one to watch. In the meantime Ian, thanks very much.
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by Robert St George on Feb 20, 2017 at 00:01