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Soaring by 145% over five years would be an excellent performance for any investment trust in my opinion. That is what has been achieved by HgCapital Trust (LSE: HGT).
That sort of performance has clearly not gone under the radar. The daftly named HgCapital has a market capitalisation of £2.4bn. Despite that, it trades on a price-to-earnings (P/E) ratio of just 10.
Now, I find P/E ratios less useful in assessing investment trusts (where earnings typically come from investing) compared to companies (where they ordinarily come from operations). But a P/E ratio of 10 is fairly low – could investing in HgCapital Trust offer my portfolio some long-term opportunity?
Approach proven over time
Past performance is not necessarily indicative of what will happen in future.
But I do think it is worth noting that the past five years have not been exceptional ones for this investment trust. Over the past 10 years, HgCapital Trust shares are up 382%. Over 20 years, they are up 945%.
The trust’s objective is to provide shareholders with consistent long-term returns that beat the FTSE All-Share Index. It aims to do that by investing mostly in companies that are not listed on the stock market and where there is the potential to unlock value through strategic or operational changes.
The trust’s biggest investment focus is software, where it has around 50 holdings.
As it focuses on unlisted companies, many of these firms may not be well known to most investors. For example, Fonds Finanz is a financial intermediary pool focused on the German insurance sector. So, few (if any) small British investors are likely to be familiar with it.
That makes it harder to assess HgCapital’s portfolio in the way one might for an investment trust like City of London or Scottish Mortgage, where most holdings are large, listed firms.
But one advantage is that by hunting mostly among unlisted companies, HgCapital may be able to tap into growth stories that still have a long way to go. Even just a few of those doing brilliantly could be enough to help the investment trust perform well overall. Its long-term value creation speaks for itself.
One to consider
Can things continue well?
Of course that remains to be seen. A weakening tech market risks hurting valuations for firms across the sector, both listed and unlisted. Meanwhile, as other investment trusts try to copy HgCapital’s successful strategy, it could become costlier to buy into some promising early stage tech opportunities.
Still, the market is large and HgCapital’s experience gives it some advantages, such as a thick book of contacts, credibility as a potential investor and understanding of how the tech space is evolving.
Given those long-term advantages and its proven approach, I see it as a potential bargain that investors should consider.
