The Henderson Smaller Companies Investment Trust aims to increase the value of shareholders’ investments over the long-term by investing in small and medium sized UK companies with high growth potential.

What does it do?

The Trust invests in small and medium sized UK companies and its primary focus is to maximise shareholder returns over a long-term period.

How does it do it?

The Trust invests in companies listed in the Numis Smaller Companies Index, which are companies valued below £1.3bn in size. The Trust takes a long-term investment approach and companies will be included in the portfolio for an average of five years.

Why does Neil do it?

The philosophy of the Trust is a growth one. We believe investing in equities is about capital growth and the future. However, making sure you get the right price is important to us – you shouldn’t have to pay too much simply because you think a company will grow in the future.

I also look to buy quality companies and to do this I have a checklist that quality companies should be able to tick off. For example, the management team for smaller companies is very important, and it is important to assess the company’s strategy, motivation, vision and governance before investing. A company’s income is another important consideration, so I take time to look at their financial reports. I want to be confident that the company can beat expectations and grow its balance sheet in the future.

What are the Risks?

Share prices go up and down. If you sell your shares at a lower price than you bought them, you will have lost money. You should be comfortable with this risk before investing. See Step 2 for more information on risk, if you haven’t already.

Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.

This Trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this Trust.

Derivatives use exposes the trust to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.

The return on your investment is directly related to the prevailing market price of the Trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the Trust’s assets.

The Trust may borrow money (gearing) as part of its investment strategy. If the Trust utilises its ability to gear, the profits and losses incurred by the trust can be greater than those of a trust that does not use gearing.

Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.

Source: Morningstar