Henderson Far East Income (LSE: HFEL)

Last close As at 17/07/2024

GBP2.38

−2.50 (−1.04%)

Market capitalisation

GBP393m

Henderson Far East Income aims to provide shareholders with a growing total annual dividend per share and capital appreciation, from a diversified portfolio of investments in the Asia-Pacific region. It has stock market listings in London and New Zealand.

Equity Proposition

Henderson Far East Income (HFEL) is managed by Sat Duhra at Janus Henderson Investors, a global asset manager based in London. The trust’s dividend has increased for 16 successive years.

1. HFEL seeks income opportunities across Asia-Pacific.

HFEL is an income-focused Asian investment trust, which aims to provide shareholders with growing total annual dividends and capital appreciation from a diverse portfolio of Asia-Pacific equities. The strategy has no country or sector bias and no formal benchmark.

Sat Duhra recently became HFEL’s lead manager following more than six years as co-manager, working alongside Mike Kerley, who has retired. Duhra is also the lead manager of the Janus Henderson Asian Dividend Income strategy, a position he has held since January 2022. This adopts a similar investment approach to HFEL and has outperformed its peers over the past one and three years.

2. The company has a long history of growing dividends.

HFEL has consistently met its objective of providing a growing total annual dividend; the dividend has increased for 16 consecutive years. The total dividend of 24.2p paid for the financial year ending 31 August 2023 (FY23) was 1.7% higher than the FY22 dividend. This represents a very attractive dividend yield of more than 10.0% (as of 17 May 2024) – well above the average dividend yield of the company’s peer group.

HFEL’s manager is positive about the portfolio’s revenue prospects, as the dividend culture in South Korea, India, Indonesia and other Asian markets is improving, and dividend payouts are rising accordingly. This trend should be supported over the medium term by Asia’s superior growth prospects, compared to other regions.

3. HFEL’s new manager has repositioned the portfolio.

Duhra has overseen a significant repositioning of the company, beginning in late 2023. He reduced overall exposure to China, by selling high-income cyclical stocks, while taking advantage of attractive valuations to acquire some higher-quality Chinese names where the current dividend yield is still low, but the absolute dividend per share is growing. Purchases have been focused in areas such as infrastructure, AI and internet and growing domestic consumption – structural themes that Duhra believes will drive equity markets over the long term.

Another key portfolio shift has been increased exposure to similar structural growth trends playing out in India and Indonesia, where the manager believes there is less regulatory risk, fewer structural impediments and clearer growth paths than in China. He also believes that these areas capture the strongest potential for future dividend growth.

This repositioning is paying off – HFEL outperformed the market in the six months to end-April 2024.

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Equity Analyst

Joanne Collins

Joanne Collins

Analyst, Investment Trusts

Key Management

  • Sat Duhra

    Fund manager

Share Price Performance

Price Performance
% 1M 3M 12M
Actual 0.0 5.1 (0.4)
Relative (1.2) 0.0 (10.4)
52 week high/low 245.0p/197.8p

Overview

Henderson Far East Income (HFEL) has consistently delivered on its objective to provide a rising dividend. However, like many investors, HFEL’s managers overestimated the potential for a post-pandemic rebound in China. The trust’s resultant overweight to Chinese consumer and other cyclicals led to a fall in portfolio revenues and underperformance in the financial year ended 31 August 2023 (FY23). With a view to improving future returns, HFEL’s board has since indicated an increased willingness to use reserves when necessary to support dividend payments, which it did in FY23. This reduces the requirement to focus primarily on high income names to fund dividend payments, giving lead manager Sat Duhra scope to move into other areas of the market where he can acquire well-priced value names offering performance and yield, or the prospect of dividend growth over time. Duhra has been quick to reduce the trust’s exposure to China and increase positions into well-priced value names in India and Indonesia. Early signs suggest this repositioning is paying off – HFEL outperformed the market in the six months to end March 2024.

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