Emma Wall: Hello and welcome to Morningstar. I am Emma Wall and I'm joined today by Ian Barrass, Manager of the Henderson Alternative Strategies Trust to give his three stock picks.
Hello, Ian.
Ian Barrass: Hello.
Wall: So, what's the first pick today?
Barrass: Well, the first pick today is in our property investment category within the trust, and is called Summit Germany (SMTG). And this is a U.K. listed vehicle that invests in commercial retail and logistics property across a number of cities in Germany. It floats on the stock market in the U.K., a couple of years ago. It's not very well followed. We think there is a lot of value still in there.
The property portfolio is performing well, generating a good dividend yield for investors at the Summit Germany level, and we think there is NAV growth that is going to come out of the portfolio as well over the next year or two. So, we're very optimistic about that particular part of the property market, and it is difficult to find value in developed property markets. But we think this particular vehicle is very well-placed to deliver good returns over next year or two.
Wall: In Europe, there are a number of different rules regarding property out there that don't perhaps exist in the U.K., things like rental freezes. I mean is the market supportive of Germany of the investor?
Barrass: Yes, I think some of those restrictions, especially in relation to residential property in Germany. There have been a restriction. This particular fund focuses more on commercial than retail, and those sorts of constraints on rental growth for residential properties, I think, are less prevalent.
Wall: And what about the second pick?
Barrass: My second pick is Riverstone Energy (RSE), which is another U.K. listed vehicle and it invests, you know, using a private equity model into a number of companies that invest in the oil and gas shale sector in North America. This fund was listed a few years ago and it's run by an excellent manager at Riverstone, who have a lot of experience in the oil and gas sector worldwide and have had a series of very successful private funds. This is their first listed vehicle.
They actually were beginning their investment program just at the time the oil price crashed. And so, fortunately, they hadn't deployed much of the capital that they raised in the U.K. listing and were then able to spend their money on very attractively priced assets and benefited from the fact that the oil price had fallen significantly really before they started investing materially versus some of the investments they have we think can produce oil at very attractively low production costs.
So, we think this favorable position is still on the discount that vehicle to NAV as well, very strong manager, very good quality assets. And again we think that's still a very attractive investment for us although we have already made a good return out of it.
Wall: And what's the third and final pick?
Barrass: The third and final pick is the Biotech Growth Trust (BIOG), which is another of our listed holding. Although obviously, the Trust we do have a lot of unlisted holdings as well. We felt that the biotech sector really was hurt very hard in the run-up to the U.S. elections when there questions over whether or not there would be pricing pressure put on drugs companies and we thought it was just overdone.
And we thought there was a great value opportunity into buying into the biotech sector, and it has turned out to be the case it has improved performance, especially in recent months. And it was just such a great pricing opportunity, attractive value opportunity for us. So, we put that into our investment category for funds that specialize in a particular sector and we're very happy that we took that position is performing well.
Wall: Biotech was flavor of the year for '14, '15 and became very overinflated. Is it difficult to work how what fair value is for this type of fatty investment?
Barrass: Well I think fatty investment is a bit harsh really on the biotech sector. This sector has been around for a number of years, for 20 years, let's say, generating some fantastic innovation in the drugs world. So, there's a lot of historic track record for how companies have performed from being very early startups in the drug sector to being very large successful biotech companies.
So there is a lot of historic dates to goby to work out whether or not these companies are of value though – fully or not. So, I wouldn't describe the sector as fatty, it's is just one that has some fantastic companies in. The funds that we invest in like the Biotech Growth Trust invest in a whole range as well of biotechnology companies, most of them – to the larger end of the market.
So we make sure that we have a good diversified way of accessing the biotech market by going into these sorts of vehicles. We don't just pick particular stocks. So, we have a nice diversified spread of different types of biotech company in different stages of development as well.
Wall: Ian, thank you very much. This is Emma Wall for Morningstar. Thank you for watching.
