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Henderson buys Tesco for Lowland trust after shares dive

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11/12/2014
James Henderson has added a small stake in Tesco to his Lowland investment trust, after shares plunged 15 per cent following the supermarket's third profit warning in four months.

Henderson said Tesco shares look good value at current levels, although he suggested the stock could fall further before the business recovers.

Tesco shares have fallen 44 per cent over the last year to a 14-year low of 156p, following an accounting error which masked a £263m black hole in the company’s balance sheet.

However, Henderson said he has faith the management team, led by new chief executive David Lewis, can turn around the business.

“This may not be the long-term slog people are expecting,” Henderson said, adding he prefers to buy into recovery stories at an early stage.

He has taken a 0.5 per cent position in the embattled retailer in the £400m Lowland investment trust, as part of a strategy he will pursue into 2015.

“As an investor, you are always meant to slam the table and have convictions,” the manager said. “For us, it is not about conviction, it is about probabilities.”

Meanwhile, Henderson said the fund’s positions in small oil companies had been damaged by dramatic falls in the oil price.

“The whole year has been truly horrid for those positions with redemptions and low cashflow. We are still running those positions because, if one comes right, it will pay for the losses from the others.”

Another theme for the fund is university spinouts, including First Light Fusion, which is developing new nuclear fusion technologies, and Oxford Nanoport Technologies, which hopes to commercialise DNA sequencing technology.

These tech companies make up nearly five per cent of the portfolio, and are largely managed through intermediary IP Group, an intellectual property commercialisation company.

“These companies are ambitious, but it is risky, blue-sky investing” said Henderson. “By owning the group, we diversify against the possibility of individual failures, while keeping Lowland exposed to potential successes.”

The Lowland trust has returned 79.3 per cent over the last three years against a UK Equity Income sector average return of 61 per cent, and is currently trading on a 2.5 per cent discount to NAV, according to FE data.

Henderson was recently awarded the Oustanding Industry Contribution Award  atInvestment Week‘s Investment Company of the Year Awards.

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