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Overseas income fund with attractive total returns

Henderson International Income Trust 20 January 2020 Review
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Henderson International Income Trust

Overseas income fund with attractive total returns

Investment trusts
Global ex-UK equity income

20 January 2020

Price

175.5p

Market cap

£337.6m

AUM

£335.8m

NAV*

170.9p

Premium to NAV

2.7%

NAV**

172.0p

Premium to NAV

2.0%

*Excluding income. **Including income. As at 16 January 2020.

Yield

3.3%

Ordinary shares in issue

192.4m

Code

HINT

Primary exchange

LSE

AIC sector

Global Equity Income

Benchmark

MSCI World ex-UK

Share price/premium performance

Three-year performance vs index

52-week high/low

176.0p

153.5p

172.3p

150.6p

**Including income.

Gearing

Gross*

10.0%

Net*

9.0%

*As at 31 December 2019 (Source: AIC).

Analysts

Sarah Godfrey

+44 (0)20 3681 2519

Mel Jenner

+44 (0)20 3077 5720

Henderson International Income Trust is a research client of Edison Investment Research Limited

Henderson International Income Trust (HINT) was launched in 2011 with the aim of enabling UK-based investors to diversify their sources of income by investing overseas. As shown in the chart below, the UK market suffers a high degree of dividend concentration, with the top 10 dividend payers accounting for 55% of total UK dividends in 2018 compared with 9% for the top 10 payers globally. Since launch, HINT’s investors have enjoyed total returns of c 10% a year, supported by well-covered dividends that have grown at a compound annual rate of 5.2%. While manager Ben Lofthouse’s value-oriented investment approach has been somewhat at odds with growth- and momentum-driven markets recently, he is finding plenty of attractive investment opportunities.

Investing overseas reduces dividend concentration risk

Source: Janus Henderson Investors, Edison Investment Research. Note: At 31 December 2018.

The market opportunity

The global equity market shrugged off geopolitical worries to post a 20%+ total return in 2019 and 2020 has begun positively. However, with aggregate valuations looking extended (the Datastream World index forward P/E is only 0.1 point off its 10-year high), investors with a focus on value and income may be better rewarded over the longer term than those who simply ‘buy the market’.

Why consider investing in HINT?

HINT is the only global equity income investment trust that specifically excludes the domestic market, to which investors may already be sufficiently exposed.

Manager Ben Lofthouse has built a successful track record since HINT’s launch in 2011, with c 10% annual total returns and year-on-year dividend growth.

The manager seeks cash-generative companies with secure and growing dividends and HINT’s own dividends are fully covered by income.

Unique approach keeps shares trading close to NAV

At 17 January 2020, HINT’s shares traded at a 2.0% premium to cum-income NAV. Reflecting its unique investment mandate and the appetite for income, the trust has traded at an average premium of 0.8% since launch and the board regularly issues shares to meet demand. HINT currently offers a dividend yield of 3.3%, broadly in line with the peer group average despite excluding the higher-yielding UK market.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Henderson International Income Trust (HINT) seeks to provide shareholders with a growing total annual dividend, as well as capital appreciation, by investing in a focused and internationally diversified portfolio of c 60–80 stocks that are either listed in, registered in, or whose principal business is in countries that are outside the UK. The portfolio will be made up of shares and fixed interest assets (maximum 25%) that are diversified by factors such as geography, industry and investment size.

5 December 2019: all resolutions passed at AGM.

29 October 2019: results for the year ended 31 August. NAV (cum-fair) TR 0.0%, versus +8.0% for MSCI World ex-UK index. Share price TR -1.4%. Fourth interim dividend of 1.5p brings total for the year to 5.7p (+7.5% y-o-y).

18 July 2019: HINT to issue 7.8m shares after acquiring £12.9m of assets from Establishment Investment Trust as a result of investors choosing HINT as a rollover option.

Forthcoming

Capital structure

Fund details

AGM

December 2020

Ongoing charges

0.84%

Group

Janus Henderson Investors

Interim results

April 2020

Net gearing

9.0%

Manager

Ben Lofthouse

Year end

31 August

Annual mgmt fee

Tiered (see page 9)

Address

201 Bishopsgate,
London, EC2M 3AE

Dividend paid

Feb, May, Aug, Nov

Performance fee

None

Launch date

28 April 2011

Trust life

Indefinite (subject to vote)

Phone

+44 (0) 20 7818 1818

Continuation vote

Three-yearly, next 2020

Loan facilities

See page 9

Website

www.hendersoninternationalincometrust.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Dividends paid quarterly in February, May, August and November.

HINT may buy back up to 14.99% of shares to manage a discount and will issue shares (up to 10%) to manage a premium. FY16 issuance includes the rollover of investments in Henderson Global Trust, while FY19 includes the rollover of investments in Establishment Investment Trust.

Shareholder base (at 9 September 2019)

Portfolio exposure by region (at 31 August 2019)

Top 10 holdings (at 30 November 2019)

Portfolio weight %

Company

Country

Sector

30 November 2019

30 November 2018*

Microsoft

US

Technology

3.5

4.4

Nestlé

Switzerland

Consumer goods

3.2

2.9

Novartis

Switzerland

Healthcare

2.8

2.1

Coca-Cola

US

Consumer goods

2.5

2.6

Roche

Switzerland

Healthcare

2.4

1.9

Sanofi

France

Healthcare

2.4

N/A

Taiwan Semiconductor Manufacturing

Taiwan

Technology

2.3

1.9

Chevron

US

Oil & gas

2.2

2.6

BASF

Germany

Basic materials

2.1

N/A

Verizon Communications

US

Telecoms

2.1

N/A

Top 10 (% of holdings)

25.5

25.4

Source: Henderson International Income Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-November 2018 top 10.

Market outlook: Tread carefully amid high valuations

While it may have seemed unlikely in the midst of the market turmoil at the end of the previous year, 2019 turned out to be a banner year for equity markets, with c 20%+ returns even from less-favoured areas such as the UK and Europe. However, earnings growth was distinctly lacklustre compared with 2018, and consequently multiple expansion accounted for much of the rise in share prices. This is evident in the Datastream index valuation data (Exhibit 2, right-hand side), which shows 12-month forward P/E multiples for all regions at levels well above their 10-year averages. Of particular note is the US, where the forward P/E is at a 10-year high, 23% above the average of the past decade. Conversely, while European and Japanese valuations are also extended versus the 10-year average, they are respectively 8.4% and 22.4% below their highs. In an equity bull market that is now in its second decade and considering the geopolitical risks that – while perhaps less prominent – are still present, investors may be better rewarded by taking a more selective and valuation-aware approach, rather than buying into indices that in some cases are close to all-time highs. A focus on cash-generative companies with secure and growing dividends could provide an important support to total returns in the event of a further bout of market volatility.

Exhibit 2: Market performance and valuation

UK and World ex-UK equity market total returns over five years

12-month forward P/E valuations of Datastream indices

 

Last

High

Low

10-year
average

Last as % of
average

World

16.2

16.3

9.8

13.6

118

US

19.1

19.1

11.2

15.5

123

Europe

14.2

15.5

7.6

12.3

115

Japan

14.9

19.2

10.5

13.8

109

Asia ex-Japan

14.0

14.2

10.3

12.4

113

Source: Refinitiv, Edison Investment Research. Note: Valuation data at 13 January 2020.

Fund profile: Unique source of income diversification

The rationale behind the launch of HINT in April 2011 was to provide a single income-focused strategy for equity investors wishing to diversify their portfolios outside the UK. As shown in the chart on the front page, dividends from the largest FTSE 100 companies are disproportionately concentrated in a small number of names, whereas this is not the case globally. HINT is the only fund in its Association of Investment Companies Global Equity Income peer group to invest solely in companies that are listed in, registered in, or whose principal business is in countries outside the UK. The trust has been managed since launch by Ben Lofthouse at Janus Henderson Investors. The manager has a bottom-up, value-oriented approach to investing, seeking to build a portfolio of c 60–80 companies drawn from a range of geographies and industry sectors. While not managed with a ‘barbell’ approach (where some stocks are held mainly for capital growth and others mainly for a high income), HINT blends higher-yielding holdings with those that may have a lower starting yield but better dividend growth prospects.

HINT uses the MSCI World ex-UK index as a performance benchmark; however, because it aims to be geographically diversified, the make-up of the portfolio is likely to differ to a large degree from that of the index, which is dominated (c 67%) by the US. The trust also informally targets a dividend yield comparable with that of the UK stock market, although its current 3.3% yield is below the 4.2% on offer from the FTSE All-Share index. Gearing is permitted up to 25% of net assets, and net gearing was 9% at end-December 2019. The manager may use option-writing to enhance income (historically this has only been done to a limited extent), and currency exposure may be hedged.

The fund manager: Ben Lofthouse

The manager’s view: Staying focused on value and income

Commenting on the recent investment backdrop, Lofthouse notes that despite low interest rates and falling bond yields, there has not been much yield compression in equity income. Compared with the last US monetary easing cycle, the manager says that 2019 was characterised by a diverse opportunity set, in spite of the geopolitical headwinds. ‘In the last cycle, the moves were much more rate related; when bond yields went down, share prices in higher-yielding sectors like REITs and utilities went up, and rate-sensitive areas like financials went down,’ he explains. This time, while the overall ability to generate income despite low bond rates has remained strong, Lofthouse says it has become simultaneously harder and more important to catch the next fashion, in terms of capturing the momentum that has driven market returns. However, he remains confident that over the longer term, factors such as the contribution of income to total returns and the price at which an investment is made will underpin higher returns. ‘The charts show us we are towards the end of something, but we don’t yet know what the next thing is,’ the manager says. ‘Now, the extremes [between quality/growth/momentum and value stocks] are extreme – a few years ago they might have felt extended, but now they really are.’ He adds: ‘We have made good returns, but there have been better returns in quite a narrow range of stocks. This is a really interesting period – it is more fascinating now than it was a few years ago.’

Looking at the global macroeconomic picture, Lofthouse notes a significant change in the outlook compared with 2018, when Janus Henderson rated overheating as a 30–50% probability because of the risk of Fed over-tightening, whereas this risk is now more like zero in the immediate future. ‘It is good that overheating has gone as a risk, as historically, monetary over-tightening has been the biggest factor in tipping the US into recession,’ says the manager. ‘At the moment there is little structural growth, and rates will be probably be lower for longer. There is quite a lot of central bank easing, including lots of rate cuts in the emerging markets of Asia and Latin America.’

Lofthouse says he is generally quite constructive on the outlook for equities in 2020, although he believes earnings growth forecasts will probably turn out to be too high given sluggish economic growth. He adds: ‘If you were launching a fund today, value and income is what you would launch, but there are lots of reasons for people to sit on their hands. If it wasn’t for all the disputes – trade, Iran, Brexit – the outlook would be more supportive, but these factors will not go on forever.’ While the manager is not skewing the HINT portfolio aggressively in any direction, he says the climate of uncertainty has been providing opportunities across numerous areas, not just in value cyclicals, and he is ‘quite intrigued’ by the opportunities available. However, he concludes: ‘Generally, buying into unloved situations makes for good returns. The moments when people are giving up are often a good sign that it’s a good time to do something.’

Asset allocation

Investment process: One-stop shop for overseas income

As a member of Janus Henderson Investors’ dedicated global equity income team, HINT manager Lofthouse can draw on the support of a large pool of in-house research analysts based around the world. The trust’s investment universe is defined by screening the c 1,500 constituents of the MSCI World ex-UK index (covering 22 developed stock markets) to identify those with a dividend yield above 2% (the focus range is c 2–6%, as very high-yielding companies are often on the verge of a dividend cut), an attractive free cash flow yield and strong free cash flow growth. The resulting pool of stocks undergoes further fundamental analysis, looking at each business’s ability to generate sustainable cash flows, profits and dividends. The manager seeks to buy companies that have strong competitive positions, are able to fund their investment requirements without being over-reliant on debt, offer sustainable returns and have management teams whose interests are aligned with those of shareholders. Because HINT seeks to achieve capital appreciation as well as paying a growing dividend, Lofthouse aims to maximise potential returns by investing when companies are out of favour with investors and trading at depressed valuations.

The result is a portfolio of c 60–80 companies, widely diversified by geography. While individual country and sector weightings are a product of bottom-up stock selection, there are some broad investment guidelines in place, which stipulate that no single region (split into North and South America; Europe, Middle East and Africa; and Asia including Japan) may make up more than 50% of the total portfolio. Because of this, HINT is likely always to be less exposed to the US than its benchmark index, around two-thirds of which is currently made up of US companies. The trust may invest up to 25% of its portfolio in fixed income securities, but in practice it has not done so.

Portfolio turnover (excluding assets acquired in the Establishment Investment Trust rollover) was c 40% in FY19 (FY18: c 44%), implying an average holding period of c 2.5 years. All holdings are assigned a price target and may be either sold or reassessed (for example, if anything has changed that could lead to further upside) when this is reached. Positions may also be exited if there is a fundamental change in the outlook that would negate the original investment thesis. A fall in a company’s yield to less than 2% (either because of strong capital performance or a dividend cut) would lead to a review of the holding, although it would not trigger an automatic sale. The manager may use option-writing to enhance income; this would normally involve writing a put option to sell a holding at a particular price (for example, where it is close to its price target and the manager is happy to take profits on the position). Option premiums generated £310k of income for HINT during FY19, which was c 2.3% of total revenues.

Current portfolio positioning

At 30 November 2019, HINT had 72 holdings in its portfolio, a slight decrease from 77 a year earlier. Top 10 concentration was almost unchanged, at 25.5% versus 25.4% on 30 November 2018. In geographical terms (Exhibit 3), the biggest change in weighting over the 12 months was a 5.3pp increase in France, which included the purchases of healthcare giant Sanofi and water and waste management specialist Veolia. The 1.6pp increase in the Switzerland allocation was largely due to strong performance, including from healthcare stocks Roche and Novartis, both top 10 positions alongside Sanofi. While the US remains the biggest individual country weight, at 31.5%, Lofthouse says the aggregate European weighting is higher, at more than 40% (see Exhibit 1 for a regional breakdown at end-FY19). ‘A lot of global companies are very cheap in Europe, as passive fund flows have been coming out of the region, and it is underappreciated how much things can change at a company level,’ he explains.

In terms of sectors, the purchases of Sanofi and US peer Bristol-Myers Squibb, along with strong performance from the Swiss pharma companies and US medical device maker Medtronic, have contributed to a 5.6pp increase in the healthcare allocation, the largest change over 12 months. Lofthouse explains that he was counter-cyclically buying healthcare when it sold off, with Sanofi having the added benefit of being a restructuring story. ‘It has a new management team looking to turn it around and make it more focused, but it was very cheap versus its US peers,’ he says.

Exhibit 3: Portfolio geographic exposure (% unless stated)

Portfolio end-November 2019

Portfolio end-November 2018

Change (pp)

United States

31.5

32.7

(1.2)

France

12.4

7.1

5.3

Switzerland

10.8

9.2

1.6

Germany

6.0

6.2

(0.2)

China

5.2

7.2

(2.0)

Netherlands

4.7

6.4

(1.7)

Italy

4.0

N/S

N/A

Taiwan

3.8

3.2

0.6

Sweden

3.3

3.7

(0.4)

Canada

3.3

4.1

(0.8)

Other

15.0

20.2

(5.2)

100.0

100.0

Source: Henderson International Income Trust, Edison Investment Research

The biggest fall in weighting over the year to end-November was in industrials (-2.5pp), which the manager says ‘came down a bit through selling things when they had done well’. Profit taking was also partly responsible for the 2.2pp reduction in financials (for example, the position in private equity firm Blackstone, which performed strongly, was sold during FY19), while other sales included Credit Suisse, where Lofthouse felt performance headwinds outweighed the company’s ambitions to generate higher returns. ‘The lower-for-longer rate environment makes it more difficult for them. They have been restructuring very hard, but rates are a headwind that makes it harder to realise value,’ he explains. Financials remains the largest absolute weight, although it is well diversified and features c 6% in real estate (including data centre REIT CyrusOne and telecom tower owner Crown Castle) and a similar weighting in insurance. A recent purchase in this area is Allianz, which Lofthouse says came out of a ‘perfect storm’ of falling equity markets and rising bond yields in Q418 with higher solvency figures than expected, ‘suggesting the dividend was more secure than we thought’. Conversely, the position in Deutsche Telekom was sold in Q119 because the manager was worried about a dividend cut; this came to pass towards the end of the year.

Exhibit 4: Portfolio sector exposure (% unless stated)

Portfolio end-November 2019

Portfolio end-November 2018

Change (pp)

Financials

24.5

26.7

(2.2)

Consumer goods

14.6

13.0

1.6

Healthcare

13.4

7.8

5.6

Technology

11.9

11.9

0.0

Telecommunications

10.0

10.7

(0.8)

Oil and gas

7.3

8.6

(1.3)

Industrials

6.5

8.9

(2.5)

Basic materials

4.9

6.6

(1.7)

Consumer services

3.5

4.5

(1.0)

Utilities

3.4

1.2

2.2

100.0

100.0

Source: Henderson International Income Trust, Edison Investment Research

The manager notes that HINT has a bigger technology weighting than many income-oriented peers: ‘People don’t think of it as an income area, but it has been the sector with the biggest growth in dividends,’ he says citing the ‘enormous’ dividend growth of companies such as Taiwan Semiconductor Manufacturing and Microsoft. On the high-yield side, Lofthouse says there are some ‘extraordinary’ yields in financials: ‘People don’t believe them, but they keep going up.’

Rounding out the recent changes in the portfolio, the manager had kept an eye on companies that he felt had underappreciated exposure to negative macro and trade factors and has sold positions in US electrical retailer Best Buy – ‘which has definitely turned out to be trade exposed’ – and toy manufacturer Hasbro, whose input costs had gone up because of trade tariffs. Lofthouse took a position in US semiconductor stock Lam Research when the sector suffered a cyclical sell-off; the company’s share price subsequently more than doubled.

Performance: Total returns of c 10% pa since launch

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

MSCI World ex-UK (%)

FTSE All-Share (%)

MSCI World (%)

MSCI World ex-UK HDY (%)

31/12/15

2.3

4.2

4.3

1.0

5.5

3.6

31/12/16

26.7

26.5

30.1

16.8

29.0

33.1

31/12/17

17.5

14.0

14.0

13.1

12.4

9.0

31/12/18

(5.0)

(6.3)

(2.9)

(9.5)

(2.5)

0.7

31/12/19

15.4

16.2

22.7

19.2

23.4

19.2

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

In a buoyant year for global equity markets, HINT performed well in absolute terms (NAV TR +16.2% in 2019), but lagged indices (Exhibit 5). While the trust’s structural underweight to the US has been a relative performance headwind for several years as the market has surged ahead, in 2019 HINT also underperformed the UK, which benefited from receding Brexit uncertainty following December’s decisive general election result. However, longer-term performance versus the FTSE All-Share (Exhibit 7) and in absolute terms (Exhibit 6, right-hand side) has been creditable, with annualised share price and NAV total returns of c 8–11% a year over three and five years and since inception, compared with c 7–8% a year for the FTSE All-Share index. This illustrates that, in addition to diversifying their sources of income away from the highly concentrated UK market, HINT investors have also enjoyed superior total returns over time by investing overseas.

Exhibit 6: Investment trust performance to 31 December 2019

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three- and five-year and since inception (SI, 28 April 2011) performance figures annualised.

Lofthouse explains that HINT’s value-oriented style of investing has provided investment opportunities as the performance differential between growth and value stocks has grown wider, but has also been negative for performance versus the index. ‘It has not been a disappointing year overall – it has been good in terms of income, but very variable in terms of some of the underlying holdings’ performance,’ he says. ‘The market is either rewarding risk aversion or very fast growth, which is difficult as an income investor.’

Over the 12 months to end-September 2019, the top positive contributors in geographical terms relative to the benchmark were the underweight positioning in Japan and the overweight in Pacific ex-Japan. On the downside, overweight positions in Europe and emerging markets detracted from returns, while the relative lack of exposure to the US was also negative. On a sector basis, HINT benefited from above-index weightings in communication services and consumer staples, as well as underweight positions in information technology, healthcare and consumer discretionary stocks. However, this was outweighed by relative underperformance in financials, energy and materials (all overweight versus the benchmark) and an underweight position in industrials.

At the stock level, the five biggest contributors to and detractors from relative performance were all overweight positions. The top five positive contributors, which added 3.01% of relative return, were a diverse set of names, including consumer goods companies (Anta Sports Products and Nestlé), utilities (Enel) and IT-related stocks CyrusOne (data centres) and Lam Research (semiconductors). ‘The top contributors are stocks we bought when they were out of favour that the market now likes,’ says Lofthouse, adding that CyrusOne did particularly well on the back of a bid approach. Conversely, the biggest detractors (with a relative impact of -3.27%) were mainly in the energy and petrochemical sectors (Vermilion Energy, Occidental Petroleum, Sinopec and Indorama Ventures), as well as Swedbank, one of a number of Scandinavian banks caught up in allegations of money-laundering in their Eastern European operations.

The manager says that despite positive fundamentals, oil companies have not been rewarded by the market. ‘Energy stocks have been very weak but the oil price has not, so the cash flows are still there and dividends are being paid. Oil does not have it tough in the same way as high-street retail, and unlike five years ago, its free cash flow yield is higher than its dividends,’ he explains.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

SI

Price relative to MSCI World ex-UK

1.0

2.8

(0.5)

(5.9)

(5.0)

(9.4)

(11.9)

NAV relative to MSCI World ex-UK

1.2

0.2

(0.9)

(5.3)

(8.5)

(11.1)

(11.5)

Price relative to FTSE All-Share

(1.2)

0.0

(1.0)

(3.1)

5.7

16.1

23.8

NAV relative to FTSE All-Share

(1.0)

(2.4)

(1.4)

(2.4)

1.8

13.9

24.3

Price relative to MSCI World

1.5

3.1

(0.6)

(6.5)

(4.7)

(9.3)

(15.4)

NAV relative to MSCI World

1.6

0.6

(1.0)

(5.8)

(8.2)

(11.0)

(15.1)

Price relative to MSCI World ex-UK HDY

1.7

5.2

0.5

(3.2)

(1.5)

(7.5)

(12.6)

NAV relative to MSCI World ex-UK HDY

1.8

2.7

0.1

(2.5)

(5.1)

(9.3)

(12.3)

Source: Refinitiv, Edison Investment Research. Note: Data to end-December 2019. Geometric calculation.

Discount: Trading at an average premium since launch

Since launch, HINT has regularly traded at a premium to NAV, which underlines the importance of income to investors in a low interest rate environment and perhaps reflects the trust’s differentiation from its peers, in being the only AIC Global Equity Income fund that excludes the UK. At 17 January 2020, HINT’s shares traded at a 2.0% premium to cum-income NAV, which is above the one-year average premium of 1.2%, although it has fallen from a c 3.0% premium at the beginning of the year. Over the longer term, HINT has also traded on average at a premium, averaging 0.6%, 0.2% and 0.8% respectively over three and five years and since launch in 2011.

Exhibit 8: Share price premium/discount to NAV (including income) over three years (%)

Source: Refinitiv, Edison Investment Research

To manage the premium, the board has the authority, renewed annually, to allot shares up to the equivalent of 10% of the share capital. It may also repurchase up to 14.99% of shares to manage a discount. There is no specific level of discount or premium at which the board would repurchase or issue shares, but its intention is that HINT’s shares should trade in a narrow band relative to NAV.

Capital structure and fees

Structured as an investment trust with one class of share, HINT had 192.4m ordinary shares in issue at 17 January 2020. This was an increase of 9.6% over 12 months, due in part to the trust’s role as one of two rollover vehicles for the Establishment Investment Trust, which boosted assets by c £13m and the number of shares in issue by c 7.8m (c 4.4%). HINT also regularly issues shares in response to investor demand, to limit the premium to NAV.

Gearing is permitted up to 25% of net assets at the time of drawdown. In April 2019, HINT issued €30m of 25-year loan notes with a coupon of 2.43%; it also has a £30m overdraft facility with HSBC. Taken together, the c £56m of available gearing equates to c 17% of net assets; however, with the overdraft partly undrawn, net gearing was 9.0% at end-December 2019.

Janus Henderson Investors is paid an annual management fee of 0.65% on net assets up to £250m, falling to 0.60% above this level. There is no performance fee. Ongoing charges at end-FY19 were 0.84% (FY18: 0.83%).

Dividend policy and record

FY19 marks HINT’s eighth full year of operation and its dividends per share (paid quarterly, in February, May, August and November) have grown every year, with a compound annual growth rate of 5.2% since inception. This is in spite of an almost fivefold increase in the number of shares in issue since launch. Total dividends for FY19 were 5.7p per share (a 7.5% increase year-on-year), made up of three interim dividends of 1.4p and a fourth interim dividend of 1.5p. Barring unforeseen circumstances, the board has announced its intention to maintain HINT’s quarterly distributions at 1.5p in FY20, meaning total dividends for the year to 31 August 2020 should be at least 6.0p. In each of the last four financial years, the fourth interim dividend has been 0.1p higher than the first three quarterly payments, so the FY20 total dividend could be higher than forecast, at 6.1p (a 7.0% increase year-on-year), if this pattern is maintained. HINT’s dividends have been fully covered by income in every year of operation so far, and it has also added to its revenue reserve each year. At end-FY19, the reserve amounted to 4.3p per share, or 0.75x the total dividend for the year. Based on the current share price, HINT has a dividend yield of 3.3%.

Peer group comparison

The Association of Investment Companies’ Global Equity Income sector, of which HINT is a member, currently has six constituents. HINT is distinguished within the group by being the only fund to exclude the UK from its investment remit; at 31 December 2019, the UK weightings of the peers ranged from 5.2% at JPMorgan Global Growth & Income to 26.0% at Scottish American. In performance terms, HINT ranks fourth of six for NAV total returns over one and three years and fifth over five years (it does not yet have a 10-year track record), which may reflect its tilt towards value and income in a market that has been propelled by growth and momentum. Ongoing charges are in line with the average and HINT does not charge a performance fee. Underlining the popularity of income investing in an environment of continued low yields on bonds and cash, five of the six funds in the sector currently trade at a premium to NAV, with HINT’s premium the third highest. Gearing is a little above average and HINT’s 3.3% dividend yield is in line with the mean; it is worth noting that its dividends are fully covered by income, unlike some of the peers whose distributions may be a partial return of capital.

Exhibit 9: AIC Global Equity Income sector as at 17 January 2020*

% unless stated

Market
cap (£m)

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Ongoing
charge

Perf.
fee

Discount
(cum-fair)

Net
gearing

Dividend
yield

Henderson International Income

337.6

18.4

24.1

64.5

--

0.8

No

2.0

109

3.3

Invesco Perp Select Glo Eq Inc

64.6

18.0

21.8

65.5

158.5

0.9

Yes

(2.4)

107

3.3

JPMorgan Global Growth & Income

487.5

24.6

27.5

84.1

191.3

0.6

Yes

0.9

100

3.7

Murray International

1,635.8

13.3

18.2

55.8

142.4

0.7

No

2.9

111

4.2

Scottish American

650.9

24.1

37.9

90.4

189.8

0.8

No

5.1

112

2.7

Securities Trust of Scotland

219.6

27.7

30.1

67.8

189.7

0.9

No

0.9

108

3.0

Sector average (6 funds)

566.0

21.0

26.6

71.4

174.4

0.8

1.6

108

3.3

HINT rank in sector

4

4

4

5

3=

3

3

3=

Source: Morningstar, Edison Investment Research. Note: *Performance to 16 January 2020. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

HINT has five independent, non-executive directors, two of whom have served on the board since the trust’s launch in 2011. Simon Jeffreys, a director since launch, has been chairman since December 2017 (having previously chaired the audit committee) and plans to stand down at the AGM in 2022. Bill Eason, also on the board since HINT’s launch, has served as the trust’s first senior independent director since October 2019 and plans to retire at the 2020 AGM. Richard Hills and Aidan Lisser were both appointed in April 2016, while Kasia Robinski joined the board in November 2017 and became chair of the audit committee when Jeffreys was appointed chairman. The directors have professional backgrounds in business management, investment, marketing and investment banking. As part of the board’s succession planning, it is intended that the appointment of new directors will be phased over the next three years.

General disclaimer and copyright

This report has been commissioned by Henderson International Income Trust and prepared and issued by Edison, in consideration of a fee payable by Henderson International Income Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Henderson International Income Trust and prepared and issued by Edison, in consideration of a fee payable by Henderson International Income Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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