Henderson Smaller Companies Investment Trust - Weak sentiment outweighing operational strength

Henderson Smaller Companies Investment Trust (HSL) has been managed by Neil Hermon for the last 20 years. He explains that small-cap stock price weakness in 2022 was due to valuation compression and was not a reflection of lower earnings; in essence macroeconomic events outweighed business trends at the micro level. However, the manager believes the interest rate cycle is close to peaking given that inflation is rolling over and the UK economy is relatively weak. Hermon considers the valuations of small-cap UK growth stocks to be 'very appealing' and believes that there could be a significant pickup in merger and acquisition (M&A) activity in a more robust economic environment when credit is more freely available.

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