This week I am looking at Herald Investment Trust, a UK-based fund that invests primarily in small-cap companies within the technology, media and telecoms sectors. Herald has been run by Katie Potts and her team since it began in 1994, which is somewhat unusual for a fund but has ensured a consistent long term strategy for investors.
Unlike some other technology funds, Herald aims to pick stocks from the smaller end of the investment universe where the team sees significant opportunities in under-researched and often hard to access companies. These early-stage businesses are often held for long periods of time demonstrated by the fact that over 20% of the portfolio holdings have been held for over 13 years. Of course, with early stage companies there can also be considerable risks and to counter this the fund is much more diversified than other collective vehicles, with over 260 stocks in its portfolio.
The Team’s breadth of experience and extensive company meeting programme has so far proven successful, and the Fund has enjoyed annualised Net Asset Value (NAV) total returns of 12% since inception, which has strongly outperformed both small-cap and technology indices.
That said, investing in the smaller end of the technology sector has not been without its difficulties in recent years, and Katie continues to struggle with the increase of acquisition activity from larger, global companies that has diminished the pool of companies she can invest in. Following the rush of takeovers at the end of 2016 the fund has maintained a higher level of cash than usual, which currently sits at 7.5%. This is however fairly consistent across many Managers, who have found value hard to come by given many company valuations are close to all-time highs.