Nick Sketch, senior investment director at Investec Wealth & Investment says it comes down to the underlying markets and, ultimately, liquidity.
“[Optimum size] varies depending on the job it tries to do. If BlackRock Frontiers, for instance, were £800m in assets, it would be too big – so we should all thank BlackRock, the board, and most of all manager, Sam Vecht for keeping it at the best size to maximise returns,” he says.
Having said that, with a more liquid universe, such as US large-cap equities, there is no need “to accept imperfect liquidity and discount risk”.
A mainstream trust investing in this space might be a lot more attractive at £2bn than it would at £800m, for example.
Sketch also says he would find it hard to justify investing in a £50m or £80m trust given the due diligence required for such a small holding.
A degree of overlap
In the case of UKT and the £207m HHI portfolio, both managers have been described as “solid”, “risk-aware” and have a tendency to focus on high-quality defensive business.
Both are currently overweight consumer staples like tobacco and underweight resources, which Sketch says made “both wrong over the last 12 months but right over the previous 12 months”.
While Henderson’s David Smith appears to have more of a value tilt, the similarities are clear.
HHI holds 97 names versus UKT’s more concentrated 63 holdings with British American Tobacco, AstraZeneca, Royal Dutch Shell, Diageo and Imperial Brands featuring in the top 10 of both.
As two small portfolios of large-cap stocks, any dealing required to integrate the combined portfolios would pose no issue.
Lovett-Turner concludes: “There’s a lot of recognisable names in there, but Henderson High Income has more of an income focus.
“They are both focused on UK companies so it’s a bit of a change, but not that dramatic – I don’t think shareholders will be too worried.”
“David Smith has a bit of a value style and they are a very well-established team. I would expect shareholders to support the proposal when it comes through.
“I think the Henderson mandate is attractive for those looking for a decent level of income.”
