The Investment Column: Hold on tight to Henderson
Tuesday 22 June 1999
The market looks favourably on Henderson. Investment trusts trade on discount to their net asset value of around 15 per cent. In Henderson's case, it is only 9 per cent. That reflects its 34 per cent annual net asset value growth. Since 1984, when Mr Ashford-Russell created TR Technology, which became Henderson in 1997, he has delivered 26 per cent growth annually.
Booming Internet stocks in the US saw Henderson achieve net asset value growth of 40 per cent last year. The fund is already 10 per cent up on the 30 April year end and it hit a new high on Friday.
Such performance cannot be sustained. Indeed, despite a 50 per cent fall in many Internet valuations since March, there are signs of worse to come. There is a queue of new Internet issues waiting to come to the market - a warning that this is not a good time for new investors to pile in. Since January, technology stocks have gained 30 per cent in value; historically, such gains have been followed by sluggish performance in the rest of the year.
It is no surprise then that since March Henderson's has halved its Internet exposure. But it admits it cannot prevent its asset value going down in the event of a sell-off of technology stocks.
There is, however, a strong long-term investment case for the company. In the past decade the US economy seems to have achieved non-inflationary growth. Technology, especially improved distribution mechanisms, has kept prices competitive. If the rest of the world follows the same deflationary pattern, cyclical stocks will struggle. In a world short of growth stocks, technology stocks offer the rewards of emerging market plays without the political risk. A sell-off this summer would be an opportunity for Henderson to pick up some bargains.
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