Henderson Far East Income has announced its results for the year ended 31 August 2015. During the period the company’s NAV total return was -11.5%, marginally outperforming its benchmark, the FTSE All-World Asia Pacific ex Japan Index, which returned -11.8%. The company moved from trading at a 0.4% premium to a 0.9% premium during the period. The report highlights the slow down in China, difficulties in the Chinese stock market and downturn in commodity markets as hampering performance.
The report highlights that the Australian market is an important source of income for the trust and that fall in the A$ exchange rate impacted on sterling returns. However, income from investments rose 6.2% over the year and would have been higher had the sterling exchange rate not appreciated by 4.2% against Asia Pacific currencies. Despite this, the company had an increase in total income of 10.2% during the period and is proposing a fourth interim dividend of 4.90p (up from 4.7p for 2014) producing a total dividend for the year of 19.20p (up from 18.20p for 2014). The dividend has increased progressively every year since incorporation.
The manager says that they would normally expect the portfolio to be more resilient than it has proved to be. They believe this, “is a function of the indiscriminate nature of the sell-off dominated by fund flows, rather than fundamentals in a period where weaker growth and a possible rise in interest rates impacted growth and yield alike”. They say that, the portfolio benefited from its positions in China where the attractive valuations of the stocks held proved much less volatile than the broader market. Elsewhere, the resilience of Taiwan was beneficial while the heavy weighting in telecommunications also added value on a relative, if not absolute, basis.
In terms of individual stocks, notable performances were provided by from some the Chinese holdings – Beijing Capital Airport, Netease, Bank of China and Zhengzhou Yutong Bus which all posted significant gains over the period. On the negative side, poor returns from Hyundai Motor, Wistron and Sands China offset some of these gains.
In terms of outlook, the manager (Mike Kierley – pictured) says that they remain positive on the outlook for the region in the medium to long term but recognise that market direction will be dictated by macro factors in the short term. He believes that the uncertainty surrounding interest rate rises in the US and volatility in the currency markets is likely to persist for the short term but remains confident that Asian economies and companies are well placed to handle any potential bouts of volatility. Valuations in Asia are attractive relative to their own history and other world markets in his view. He says that companies are cash rich with tremendous potential to increase dividend pay-outs over time and that they will use any market volatility as an opportunity to acquire quality high yielding or high dividend growth companies at attractive prices.
Henderson Far East Income increases dividend and mildly outperforms benchmark : HFEL