The stock rallied by up to 36 per cent at one point when it was floated on Friday last week, jumping from 330p a share to as much as 450p. This meant that the raft of private investors with £750 in the stock bagged more than £270 in a matter of minutes.
Henderson (pictured) got a much healthier allocation – around £3.75m split equally across his Henderson UK Equity Income fund, Lowland Investment Company and Law Debenture IT. The manager also bought a smaller stake for his Henderson UK Opportunities trust, but would not say exactly how much, as he has already taken profits from that position. He says he has no plans to sell the positions in his income portfolios, because Royal Mail gives him something that very few UK companies can at the moment.
"Like a lot of investors, I applied for Royal Mail – across all of my funds," he said.
"I’m keeping hold of it across my income funds, but I’ve since sold it in the Opportunities trust. While it was cheap, it’s obviously had a big rise and I think there will be other things I can find at a better price."
"In Lowland and Debenture, I won’t be selling though. On a very basic level, it is yielding 4.5 per cent, which is a big story in its own right. It’s not particularly cheap anymore, but I’ve been hard pressed to find anything interesting with this kind of a yield. Share prices have risen so steeply recently, sending yields down."
"A lot of the stocks seen to be high yielders have also come right down, so there’s not a huge amount of choice."
The yields on Henderson’s funds have been hit harder than most, as they have outpaced the recent strong run in the UK market. All three have beaten their FTSE All Share benchmark over the past 12 months, and are currently yielding between 2.71 and 3.62 per cent.
Performance of funds and index over 1yr
Source: FE Analytics
The £1.25m position in Royal Mail means that Henderson’s Henderson UK Equity Income fund and Lowland Investment Company have around a 0.5 per cent weighting to the stock. At £655m, the Law Debenture IT is quite a bit bigger than Henderson’s other vehicles, and so it has a lower weighting overall.
Given that the stock rose so significantly when it was first floated, Henderson does not think investors looking to buy the stock when it starts actively trading tomorrow should expect too much in the way of short-term upside. This, he explains, is why he has sold out of it in his Henderson UK Opportunities trust.
That said, the manager believes the company’s healthy yield will ensure that the share price remains supported in the medium-term.
"From a capital growth perspective, I think the upside is quite limited," he said. "However, when you’re yielding 4 per cent-plus, you’re always going to get interest from a wider audience."
In an article published last week, FE Trustnet spoke to a number of professional investors who attempted to buy Royal Mail, including Jupiter’s Alastair Gunn, SVM’s Craig Jeruzal and Walker Crips’ Chris Kitchenham.
In an article tomorrow, FE Trustnet will look at some of the alternative stocks on offer to anyone who missed out on the Royal Mail flotation.
