Stocks in Focus: Herald Investment Trust

Thursday 28 February 2019

This week NW Brown look at Herald, a UK-listed 814m Investment Trust which invests in smaller quoted technology and media companies across the globe.

The trust has just reported full year results to 31st December 2018, with Net Asset Value (NAV) down 4.9 per cent but outperforming its benchmark by 5.6 per cent.

Katie Potts has been lead manager since inception of the trust in 1994. She and her team have delivered an impressive 1,224 per cent return compared to a return of 213 per cent for the composite benchmark. Herald had 285 holdings at the year-end, comprising a highly diversified mix of technology and media companies spread around the World. The trust carries out fundamental research to find investments and, because smaller companies are often less well researched is able to identify opportunities that may have been over-looked by the broader market.

A persistent problem experienced by the manager is the frequency with which portfolio companies are taken over by larger firms before investors have been able to benefit fully from their investment. Related to this is the availability of private equity money, which reduces the supply of new companies coming to the market in the first place by providing funding without the need to obtain a market listing. In a new development intended to address this, the trust is considering allocating a portion of the fund to investment in private companies. This should allow the trust to find new investments at an earlier stage in their development and benefit over a longer timescale.

Herald offers investors a way to gain exposure to what can be a volatile area of the market through the medium of a closed ended fund. This is beneficial in that the managers can invest for the long term safe in the knowledge that, unlike open ended funds, it does not have to concern itself with proving daily liquidity to investors.

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