London, UK, 9 November 2022

Edison issues review on Henderson Smaller Companies Investment Trust (HSL)

In our Henderson Smaller Companies Investment Trust (HSL) initiation note in June, we highlighted the strong features the company brings to investment in UK small and mid caps, notably an experienced manager and team, an efficacious process and competitive fees. So far, 2022 has been the second most difficult year that the lead manager, Neil Hermon, has experienced in his near 20-year tenure at HSL and in his 33-year small-cap investing career overall (the most difficult being during the global financial crisis). The fund's weak showing in 2022 might have affected its three- and five-year performance, but it has not derailed HSL's 2.8% net annual outperformance of the index over Hermon's tenure. In this adverse investment environment investors can be reassured by HSL's experienced management team and established investment process, honed over many years and through multiple investment cycles.

UK smaller companies have had a prolonged period of underperformance versus larger UK companies and have been especially out of favour in 2022 as investors have become increasingly risk averse, rising interest rates have affected the valuations of long duration growth assets and sentiment towards the UK has deteriorated with political and economic volatility. Taking a step back, the historically superior rates of growth that UK small caps have delivered, together with the inefficiency of the market, has provided investors with compelling returns (even adjusting for the additional risk) when compared with larger UK companies. Their key attributes of nimbleness, disruptive technology and in many cases robust financial strength endure even in the current environment and provide the foundations for long-term future growth. In addition, the current valuation dispersion on offer between UK small caps, large caps and overseas markets provides investors with a suitable investment time horizon and attitude to risk with an opportunity to buy UK small-cap growth at historically depressed levels.  

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