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Gervais Williams to resume control of Henderson Fledgling Trust

Gervais Williams to resume control of Henderson Fledgling Trust

Gervais Williams and Martin Turner will run the Henderson Fledgling Trust (HFT) following its merger with their Diverse Income Trust.

Following a strategic review, the HFT board has decided to seek shareholder to approval to transfer the trust to Miton Capital Partners’ Williams and Turner.

The move will see Williams (pictured) return to the trust which he managed for 10 years from 2001 when at Gartmore.  

The merger has already been given the green light by major shareholders M&G Investment Management and AXA Investment Managers, which own 40.9% and 14.3% of the trust respectively.  

HFT, which is managed by Adam McConkey and Harmesh Suniara, has an investment objective of delivering long-term growth in capital and dividends predominantly from constituents of the FTSE Fledgling. It employs a hybrid investment style, whereby at least 65% of the portfolio passively replicates the Fledgling Index with an active overlay applied to the remainder.

While this style has outperformed over the long term, it has come unstuck recently due to structural and cyclical issues, leading to the underperformance of the index versus FTSE All Share and Small Cap indices.

‘In terms of cyclical issues, the economic slowdown has provided a challenging environment for fledgling companies in which to raise equity and cut short-term borrowings,’ the investment company told the London Stock Exchange.

‘For a number of years, new entrants into the Fledgling index have comprised mainly recovery stocks falling out of the FTSE All Share Index rather than new IPO or growth stocks entering the Fledgling index.’

This struggle is reflected in HFT's wide average discount of 20.6% in the 12 months to 13 February.

As the board expects these structural issues to continue, it is proposing to change its approach to match Williams and Turner’s investment style.

This will allow the trust to move up the market spectrum and invest in mid-size companies with the prospect of paying ‘good and growing dividends’. It will also be permitted to invest in FTSE 100 companies where the pair see fit.

This style has proved successful, with the Diverse Income Trust’s net asset value rising 29.4% in the 12 months to 13 February, helping lift it to an average premium of 3.1% during the period.  

As part of arrangement Miton will receive a 1% management fee, which it will until completion of the merger. It will also contribute £50,000 towards merger costs.

While Henderson was disappointed to lose the trust, it was not surprised by the decision.  

'Henderson is disappointed but not surprised that the board and major shareholders of Henderson Fledgling Trust did not want to continue with an investment that focused solely on the Fledgling asset class,' Henderson said in a statement.   

'The trust's small size and a persistent shrinkage in number of constituents of the fledgling index have raised legitimate questions about the long term viability of the trust in its current form which are being addressed here.

'However, it is disappointing to see a successful investment trust which has delivered shareholders substantial returns over time coming to the end of its natural life. Henderson will be assisting in the interests of shareholders to ensure a rapid and efficient transition.'

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Adam McConkey
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56/56 in Equity - UK Smaller Companies (Performance over 3 years) Average Total Return: 22.06%
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