Henderson Far East Income — Repositioning to raise total returns

Henderson Far East Income (LSE: HFEL)

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Henderson Far East Income — Repositioning to raise total returns

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.

Joanne Collins

Written by

Joanne Collins

Analyst, Investment Trusts

Investment Companies

Henderson Far East Income

Repositioning to raise total returns

Investment trusts
Asia Pacific Equity Income

25 April 2024

Price

231.0p

Market cap

£374.6m

Total assets

£395.3m

NAV*

227.5p

Premium to NAV

1.5%

*Including income. At 22 April 2024.

Yield

10.5%

Shares in issue

162.2m

Code/ISIN

HFEL/JE00B1GXH751

Primary exchange

LSE

AIC sector

Asia Pacific Equity Income

Financial year-end

31 August

52-week high/low

259.0p

197.8p

NAV* high/low

250.3p

208.5p

*Including income.

Net gearing*

3.0%

*As at 31 March 2024.

Fund objective

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.

Bull points

FY23 marked the 16th consecutive year of higher dividends.

Diverse income stream supports very attractive dividend yield, supplemented by reserves if required.

A renewed commitment to both capital appreciation and rising income.

Bear points

Shareholders will need to be patient, to give the portfolio reset time to deliver an improvement in performance.

HFEL’s upside capture of just 77% shows the trust’s historical tendency to underperform in a rising market. However, recent portfolio changes may lead to some improvement in this metric.

Geopolitical risks could weigh on capital inflows into Asian equities.

Analyst

Joanne Collins

+44 (0)20 3077 5700

Henderson Far East Income is a research client of Edison Investment Research Limited

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.

Time for a change – NAV performance relative to market (one year)

Source: HFEL, Edison Investment Research

The analyst’s view

The board’s commitment to supporting the manager through the use of revenue reserves should be welcomed.

The manager is positive about the portfolio’s revenue prospects, as Asian dividend payouts are rising.

HFEL’s shares are currently trading at a premium of 1.5%, not far from their long-term average premium of 2%. Further improvement in total returns resulting from recent portfolio changes should provide continued support for HFEL’s shares.

HFEL: Targeting a rising dividend and capital returns

A diverse portfolio of Asia-Pacific stocks

Henderson Far East Income (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.

Until recently, HFEL was managed jointly by Mike Kerley and Sat Duhra. Kerley had managed the trust since 2007 and Duhra joined him as co-manager in 2019. However, with Kerley due to retire in June this year, Duhra has assumed responsibility for the trust’s management and he has overseen a repositioning of the company beginning in late 2023. Details of this re-positioning are discussed below. Duhra is also the lead manager of the JH Asian Dividend income strategy, a position he has held since January 2022. This adopts a similar strategy to HFEL’s and has outperformed its peers over the past one and three years.

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 dividend paid with respect to FY22. This represents a very attractive dividend yield of 10.5%, based on the current share price. This is well above the average dividend yield of the company’s peer group (Exhibit 3).

HFEL pays quarterly dividends in February, May, August and November. The first interim dividend in relation to FY24 was paid on 23 February 2024 and the second is due for payment on 31 May 2024. Consistent with the pattern of the previous four financial years, these two dividends will each be 6.1p per share, the same as the third and fourth interim dividends for FY23.

Exhibit 1: Dividend history since FY17

Source: Bloomberg, Edison Investment Research

FY23 NAV performance hurt by positioning in China

FY23 was a challenging year for HFEL from a capital growth perspective. During the year, the company’s NAV total return fell 13.0% (in GBP terms), while the share price total return was down 14.8%. This compares to a 0.1% increase in the MSCI All Country Asia Pacific ex Japan Index, which we use here as a market proxy for comparative purposes. This performance has dragged down longer-term performance. Over the three-year period to end March 2024, HFEL’s NAV declined by 1.6% on an average annual basis, although this compares favourably with an average annual decline of 2.0% in our market proxy index over the period. Returns have lagged those of HFEL’s closest peers over all periods shown in Exhibit 3.

Exhibit 2: HFEL’s performance to 31 March 2024

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

Price, NAV and index total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

Exhibit 3: AIC Asia Pacific Equity Income sector at 23 April 2024*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(ex-par)

Ongoing
charge

Perf.
fee

Net
gearing

Dividend
yield

Henderson Far East Income

374.6

(0.7)

(9.4)

(5.0)

50.9

1.5

0.97

No

103

10.5

abrdn Asian Income Fund

340.9

3.6

3.3

23.5

84.5

(11.0)

0.98

No

108

5.6

Invesco Asia

201.3

(3.7)

(6.6)

28.6

151.6

(12.2)

0.99

No

104

4.6

JPMorgan Asia Growth & Income

298.0

2.3

(10.4)

15.4

137.4

(8.4)

0.78

No

99

4.5

Schroder Oriental Income

629.9

4.4

5.5

28.7

126.8

(6.1)

0.87

Yes

105

4.6

Simple average (5 funds)

368.9

1.2

(3.5)

18.2

110.3

(6.5)

0.92

104

6.0

HFEL rank in peer group

2

4

4

5

5

1

3

4

1

MSCI AC Asia Pacific ex Japan

3.6

(9.1)

14.4

91.6

MSCI AC Asia Pacific ex Japan HDY

10.1

16.7

25.1

89.7

Source: Morningstar, Edison Investment Research. Note: *Performance data to 22 April 2024 based on ex-par NAV. TR, total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The main reason for this disappointing performance was the company’s positioning and stock selection in China. The trust has had a longstanding underweight to China, but the Chinese government’s sudden decision to lift all its very stringent covid restrictions in late 2022 led to widespread, and seemingly very realistic, expectations that the Chinese economy, especially consumer-facing and other cyclical sectors, would rebound sharply in response to the re-opening, just as other major economies had done. So, in early 2023, HFEL’s managers increased exposure to Chinese domestic consumer activity and other areas sensitive to macroeconomic developments, in anticipation of a strong re-opening rebound.

However, this widespread confidence in China’s recovery proved to be misguided. Chinese consumers remained subdued, mainly due to their ongoing concerns about the country’s ailing property sector, and the Chinese authorities’ apparent reluctance to support the housing market. Chinese cyclical stocks were most adversely impacted by the ensuing disappointment, and HFEL’s relative returns suffered accordingly.

While this exposure to China detracted from performance during FY23, other areas of the portfolio made positive contributions to returns over the period. These included positions in financial names Hana Financial group, a South Korean regional bank, Indonesia’s Bank Mandiri and Singapore’s United Overseas Bank. Several of the trust’s Australian holdings were also significant contributors, including mining companies BHP and Rio Tinto, oil and gas producer Woodside Energy, and Goodman Group, a diversified REIT. India’s NTPC, an electricity supplier, was another significant contributor, along with Hong Kong-listed computer hardware producer Lenovo, a leading personal computer brand, which is benefiting from rising demand for servers and the AI-led replacement cycle. Another Hong-Kong based name, luggage supplier Samsonite, was also added. This company has been seeing a strong post-pandemic recovery in demand, and the manager believed the stock offered good value, as it was trading at 11x forward earnings, despite projected earnings growth of 20% per annum for next few years, according to the company, and a dividend yield which the manager estimates will rise from zero to 6% within three years. Samsonite’s share price saw a further, sudden uptick in late February 2024 on reports of takeover interest, and the company itself is considering a dual listing to realise value.

Fall in portfolio revenues left FY23 dividend partially uncovered

In addition to putting downward pressure on the valuation of HFEL’s Chinese portfolio holdings, China’s unexpectedly insipid recovery also undermined the dividend-paying capacity of many of these companies. The trust’s revenue receipts were also detrimentally affected by the managers’ decision to sell some Chinese names in the last three months of the financial year, before these stocks paid dividends, to protect capital as the macro environment in China continued to disappoint. In all, lower dividend receipts, combined with sterling strength, reduced FY23 portfolio dividend revenue in GBP terms by 8.2%, compared to the previous year. This decline meant that HFEL’s FY23 dividend was partially augmented by reserves for only the second time in 10 years. (In FY21, the dividend was uncovered due to a higher number of shares in issue, sterling strength and a lower level of Asian dividend growth in 2020.)

A shift in emphasis to enhance total returns

HFEL’s FY23 performance prompted the board to take action to improve total returns, by delivering better capital growth, while also maintaining dividend growth over time. Specifically, to this end, the board has expressed an increased willingness to use reserves where necessary to support dividend payments. The company’s revenue reserve stood at £21.6m as at end August 2023, sufficient to cover more than half of the FY23 dividend payment, and distributable reserves totalled another £180.5m at end FY23.

This decision occurred at the same time that Duhra assumed lead responsibility for the management of HFEL’s portfolio and is intended to reduce the need to invest in high-income generating stocks, to fund dividend payments in any given year. This effectively gives Duhra greater flexibility to move into new areas of the market, where he can find well-priced value names which offer performance, strong cashflows and the prospect of future earnings and dividend growth, rather than being compelled to focus on stocks that already pay high dividends. This will allow the manager to effectively capture future earnings growth earlier in a company’s growth cycle, and to buy into this performance at better valuations than if he had to wait for rising dividend payouts to materialise.

Duhra has used this additional flexibility to make some significant changes to the portfolio since the end of FY23. Firstly, he has substantially reduced overall exposure to China, by selling high-income cyclical stocks, while taking advantage of depressed valuations in this market to acquire some higher-quality Chinese names where the current dividend yield is still relatively low, but the absolute dividend per share is growing. Purchases have been focused in areas, such as infrastructure, AI and robotics and growing domestic consumption – structural themes which the manager expects to drive equity markets over the long term. Duhra expects to continue identifying opportunities in these areas of the Chinese market, especially given current depressed valuations. The other key portfolio shift has been an 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.

Recent performance has picked up

It is still too early to judge whether the manager’s portfolio changes are having their desired effect on performance. However, it is worth noting that, in the six months ended 31 March 2024, HFEL returned 8.5% on an NAV basis, well ahead of the market return of 6.5% (Exhibit 2 illustrates). This certainly suggests that the portfolio may now be on a sounder footing.

Exhibit 4: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

MSCI AC Asia Pac ex-Japan (%)

MSCI AC Asia Pac ex-Japan HDY (%)

CBOE UK All Cos (%)

MSCI AC World (%)

31/03/20

(15.4)

(15.4)

(10.7)

(12.5)

(19.1)

(6.2)

31/03/21

25.7

22.7

42.9

23.6

26.6

39.6

31/03/22

(2.4)

2.6

(6.3)

3.4

13.2

12.9

31/03/23

(3.9)

(7.9)

(2.7)

0.1

3.8

(0.9)

31/03/24

(5.0)

0.9

3.4

9.9

8.4

21.2

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

Outlook for Asian dividend payouts is improving

As an added bonus, the dividend culture in South Korea, India, Indonesia and other Asian markets is also improving. Payout ratios for Asian companies are still low relative to other markets in general, and corporate managements have also been cautious, for fear of a US recession, despite record levels of cash, low debt, strong cashflows and falling capex. However, with fears of recession now abating, local currency dividends are expected to increase. Higher payout ratios should also be supported over the longer term by Asia’s superior growth prospects, compared to other regions. (The International Monetary Fund expects the region to grow at more than 5.0% in 2024, while growth in the advanced economies will struggle to exceed 2.0%.) As a result of these factors, HFEL’s manager expects future portfolio income to come increasingly from South Korea, India and Indonesia, as well as from Hong Kong, while the trust’s Chinese holdings are expected to contribute more to capital returns, as their earnings grow over time.

HFEL’s shares back in premium territory

HFEL’s shares have mainly traded at a small premium over the past 10 years. This situation changed during 2023. Consistent with the experience of many investment trusts across various strategies and markets over the past year or so, HFEL’s shares slipped into discount territory last year, as investment trust returns in general struggled to match the lower risk returns on offer in cash and bond markets. HFEL’s move into discount territory may have also reflected its poor performance on a total return basis. However, the trust’s shares have recently moved back into premium, perhaps thanks in part to the recent improvement in performance. HFEL is currently the only member of its AIC Asia Pacific peer group trading at a premium (Exhibit 3).

Current portfolio positioning

Increased exposure to India and Indonesia, while protecting income

The reduction in overall exposure to China can be seen from Exhibits 6 and 7 (which compare positioning at end March 2024 to positioning at the time of our last note). The manager has sold Chinese materials, financials and consumer companies and other stocks linked to the macroeconomic environment.

However, to gain exposure to structural themes such as AI, robotics and growing domestic consumption, the manager has acquired some high-quality Chinese names that also offer growing dividends, at attractive valuations. Acquisitions have included infrastructure companies Nari Technology, a provider of software and equipment for power grid upgrades, with higher renewable energy penetration. The manager has also topped up a holding in ANTA Sports, the largest Chinese domestic sportswear company, which also operates international brands in China, and Swire Properties, a leading shopping mall operator in China and Hong Kong.

Exhibit 6: Portfolio geographic changes and active weights (% unless stated)

Portfolio end-
March 2023

Portfolio end-
May 2023

Change
(pp)

Active weight vs Asia Pac ex-Jap index (pp)

South Korea

16.7

14.2

2.5

5.0

Australia

15.8

16.3

(0.5)

(0.9)

Taiwan

14.4

8.0

6.4

(1.8)

China

14.3

23.4

(9.1)

(9.2)

Hong Kong

11.0

9.5

1.5

6.6

India

10.1

4.1

6.0

(8.4)

Singapore

7.6

9.0

(1.4)

4.9

Indonesia

7.5

6.5

1.0

5.7

Vietnam

2.5

3.0

(0.5)

N/A

Other

16.8

N/A

N/A

N/A

Total

100.0

100.0

Source: HFEL, Edison Investment Research. Note: N/A is not stated separately. Numbers subject to rounding.

The fall in HFEL’s China exposure has been matched by an almost equally significant increase in exposure to India, which has served to reduce the trust’s underweight to this market. The manager does not share the widely held view that it is ‘too late’ to buy India. In his opinion, the strength of Indian indices is narrowly based, driven by only a few companies. He sees many other dividend-paying names that were struggling until recently due to India’s poor economic performance but are doing much better and offering good value now that the Indian economy is improving. Duhra cites several factors as evidence of this improvement, including rising private capital expenditure, major government-funded expansions to road networks and airports, and power generation, including renewable energy, more efficient tax collection, a banking sector clean-up that has boosted margins and some strengthening in the real estate sector.

Acquisitions in this market have centred on technology stocks. In October, the manager bought two IT services companies, Infosys and HCL Technologies, which he describes as defensive high-quality stocks with the ability to grow dividends. The manager is also pleased with the performance of holdings in several Indian companies including oil and gas refiner BPCL, whose share price has risen sharply thanks to earnings upgrades. This stock is on track to pay 8–9% dividend yield. Positions in two Indian utility companies, NTPC and Power Grid have also done well. Duhra says these are examples of value in a generally expensive market. Both were purchased at around 9x earnings, provide good yields and have made very strong gains in recent months. They have the further advantage of providing exposure to India’s transition to renewable energy.

As a further example of his efforts to find value in this market, the manager waited for the chance to purchase India’s star bank, HDFC, at an attractive level. His opportunity came when investor caution related to the bank’s merger with its finance arm saw the stock’s price/book valuation decline to 2.0x, down from its usual 3.5–4.0x. This holding provides HFEL with exposure to growth in mortgages and domestic credit at around half its previous price.

Exposure to Indonesia has also increased, as mentioned above, albeit to a lesser extent, adding to the significant overweight position in this market, where the manager believes the growth outlook is supported by heavy public investment in infrastructure such as ports and an improving balance of trade. An existing holding in Indonesian Bank Mandiri has been doing well, and the manager has recently added a position in its competitor, Bank Negara, on the view that banks will continue to benefit as the country’s improving economic fundamentals and the rising penetration of banking services support loan growth, margins and dividend payouts. HFEL’s overweights to Hong Kong and South Korea has also increased, and exposure to Taiwan has risen due to an increase in tech names, reducing the trust’s underweight to this market.

Exhibit 7: HFEL geographic exposure versus Asia Pacific ex-Japan Index, end March 2024

Source: HFEL, Edison Investment Research

At the sector level, while exposure to tech has remained stable, changes include modest falls in exposure to consumer discretionary and financials. Holdings in basic material and energy increased.

HFEL is permitted to use gearing up to 30% of gross assets. The company has a £50m multicurrency bank loan facility with SMBC Bank International, which expires in August 2024. This facility, if fully drawn down, would only account for a maximum of 15% of current gross assets. The current level of gearing is 3.0% (as at 31 March 2024).

Exhibit 8: Portfolio sector changes and active weights (% unless stated)

Portfolio end-
March 2024

Portfolio end-
May 2023

Change
(pp)

Active weight vs Asia Pac ex-Jap index (pp)

Financials

30.5

31.4

(0.8)

8.5

Real estate

13.5

13.5

0.0

9.9

Basic materials

10.6

9.0

1.6

4.0

Telecoms

10.4

10.3

0.1

3.8

Technology

9.7

10.1

(0.4)

(12.9)

Energy

9.0

8.0

1.0

4.1

Consumer discretionary

8.7

10.3

(1.6)

(3.3)

Utilities

4.3

4.5

(0.2)

1.3

Industrials

3.2

3.0

0.2

(6.1)

Consumer staples

0.0

0.0

0.0

(4.5)

Healthcare

0.0

0.0

0.0

(4.9)

Total

100.0

100.0

Source: HFEL, Edison Investment Research. Note: Numbers subject to rounding.

Exhibit 9: HFEL sector exposure versus Asia Pacific ex-Japan Index, end March 2024

Source: HFEL, Edison Investment Research

Exhibit 10: Top 10 holdings (at 31 March 2024)

Company

Country

Sector

Portfolio weight %

31 Jan 2024

31 Jan 2023*

Taiwan Semiconductor Manufacturing

Taiwan

Technology

5.4

3.5

Samsung Electronics

Vietnam

Financials

4.6

3.8

Swire Properties

Hong Kong

Real Estate

3.9

N/A

DB Insurance

South Korea

Insurance

3.4

N/A

Midea Group

China

Home appliances

3.3

N/A

Bank Mandiri Persero

Indonesia

Financials

3.0

3.4

Media Tek

Taiwan

Semiconductors

3.0

N/A

United Overseas Bank

Singapore

Financials

2.8

3.3

ANTA Sports Products

China

Sportswear

2.7

N/A

Samsung Fire & Marine Insurance

South Korea

Insurance

2.7

N/A

Top 10 (% of holdings)

34.8

34.3

Source: HFEL, Edison Investment Research. Note: *N/A where not in end-March 2023 top 10.

Investment process

HFEL comprises c 40–60 stocks from across the Asia-Pacific region. The manager seeks cash-generative companies with good growth prospects that are trading at attractive valuations given the expected cash flows. He then looks to blend holdings within the portfolio that have a high starting yield with those offering superior dividend growth prospects, and capital growth, with the aim of providing an attractive total return.

Duhra, who works out of Janus Henderson’s Singapore regional hub, along with the analysts who support him, meets frequently with companies around the Asia-Pacific region and uses industry research and quantitative screening to help identify companies with high yields and/or high dividend growth prospects. He seeks to understand the business drivers and key risks of potential investee companies, and build proprietary models focusing on cash flow generation, to establish a target price range.

HFEL’s portfolio mainly comprises companies that have a market capitalisation of at least $1bn, with a bias towards mid-cap ($3–10bn) stocks and a tendency to be underweight mega-caps, which can be expensive owing to their high profile in indices and may not pay dividends. The trust generally does not buy non-yielding companies (where the absence of a dividend policy can make forecasting difficult), although some holdings may have relatively low yields of 1–2%.

The resultant portfolio sits some way between the MSCI Asia Pacific ex-Japan and High Dividend Yield (HDY) indices in terms of valuation on P/B and P/E measures, but has estimated dividend per share growth ahead of both indices and earnings per share growth comfortably ahead of the HDY Index and in line with the Asia Pacific ex-Japan Index, a combination that should be able to perform if either growth or value factors are in favour.

HFEL’s approach to ESG

HFEL’s manager focuses on engaging with the management of portfolio companies to promote the benefits for all stakeholders of doing the right thing for the environment and society and in the interests of good governance. HFEL is managed in accordance with Janus Henderson’s corporate ESG principles. To quote from the firm’s literature, ‘We believe there is a strong link between sustainability issues and the companies that will grow and succeed going forward. This applies to us as an organisation and to the companies our investment teams actively engage with in their pursuit of long-term returns for our clients.’ The firm has a corporate ESG policy group, below which sits an ESG advisory group focusing mainly on internal issues, while the ESG investment oversight group ensures principles of sustainability are embedded and adhered to within investment teams.

The manager does not exclude any sector from HFEL on ESG grounds, except munitions. When considering how a company reaches the trust’s long-term ESG goals, the transition is just as important for him as the destination. He wants to invest in companies that are improving the environment, whether they are producing oil or electronics, and he targets best-of-breed businesses generating benefits not just for shareholders but also for other stakeholders and the wider community. There is a constant process of engagement with companies to ensure they keep to their ESG targets, particularly in environmental terms. Governance has always gone hand in hand with an income strategy, because dividends are tangible evidence of good corporate governance.

Many Asian nations are understandably behind western economies in terms of tackling environmental degradation, given they are still undergoing rapid industrialisation.

Fees and charges

Since September 2021, the trust has paid its alternative investment manager, Janus Henderson Fund Management UK, a flat annual management fee of 0.75% on net assets, replacing the previous arrangements of 0.90% of net assets up to £400m and 0.75% thereafter, with no performance fee payable. Ongoing charges for FY23 were 0.97% (FY22: 1.01%). Management fees and other expenses are equally levied against capital and revenue.

Capital structure

HFEL was set up as a London-listed but Jersey-based, closed-end investment company in 2006 and, while it retains its Jersey domicile, during FY19 it moved its tax residence to the UK and joined the investment trust regime.

The company, which has a single share class, has been active in issuing shares when able to do so and there were 163m ordinary shares in issue on 30 November 2023, an increase of 6.6m over the preceding 12 months. However, issuance ceased in FY23 when the trust’s share price moved into discount territory, and the company has since begun buying back shares, purchasing a total of 0.8m so far this financial year.

In Exhibit 11 we list the trust’s largest 5 shareholders, with almost 50% held via retail investor platforms (Hargreaves Lansdown, Halifax Share Dealing and Interactive Investor). This speaks to the attractiveness of the proposition for income-seeking investors and may be one factor keeping HFEL’s share price in premium territory most of the time.

Exhibit 11: Major shareholders

Exhibit 12: Average daily volume

Source: Bloomberg, at 1 February 2024.

Source: Refinitiv. Note 12 months to 4 March 2024.

Exhibit 11: Major shareholders

Source: Bloomberg, at 1 February 2024.

Exhibit 12: Average daily volume

Source: Refinitiv. Note 12 months to 4 March 2024.

Board

Exhibit 13: Henderson Far East Income’s board of directors

Board member

Date of appointment

Remuneration at end FY23, £

Shareholdings at end FY23

Ronald Gould (chairman)

October 2021

40,950

31,324

Julia Chapman

January 2015

31,000

2,616

Timothy Clissold

September 2018

31,000

80,000

Nicholas George (audit chair)

April 2016

35,700

47,550

David Mashiter*

November 2006

31,000

5,000

Susie Rippingall

December 2023

N/A

N/A

Carole Ferguson

December 2023

N/A

N/A

Source: Henderson Far East Income. Note: * Retired from the board at the AGM held on 24 January 2024.

General disclaimer and copyright

This report has been commissioned by Henderson Far East Income and prepared and issued by Edison, in consideration of a fee payable by Henderson Far East Income. Edison Investment Research standard fees are £60,000 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.

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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 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Henderson Far East Income and prepared and issued by Edison, in consideration of a fee payable by Henderson Far East Income. Edison Investment Research standard fees are £60,000 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 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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