Henderson Far East Income’s NAV just underperformed its benchmark by 2.2% over the year ended 31 August 2016. The net asset value total return was 32.1% whilst the share price total return was 33.4%. In local currency terms, the markets returned 11.3% highlighting the significance of the weakness of sterling pre and post the UK’s vote to leave the European Union. A fourth interim dividend of 5.10p has been declared making a total of 20.00p for the year.
The manager’s report says that the outperformance at the interim stage was negated by the underperformance of high yielding equities in the second half of the year as momentum shifted towards growth and cyclicality. The strong performance of the technology sector and in particular stocks which do not fit the mandate together with the disappointing returns from the telecom sector were also not beneficial. On a more positive note there was some very strong performance at the stock level with Netease rising 127%, Telkom Indonesia rising 80% and Kepco, Scentre Group, Spark Infrastructure, Spark NZ and Mapletree Greater China Trust all seeing gains of over 50% in sterling terms.
The weakness of sterling was not only positive for capital returns but it also provided a significant boost to revenue. Total revenue rose by 5.4% with dividend income rising 6.3% and the contribution from option premium falling by 3%. The 4% rise in the dividend announced at the third interim stage to 5.1p is reflective of the strong underlying revenue growth but also of the fact that the boost from weak sterling is something that should not be relied on going forward.
HFEL : Henderson Far East Income held back by technology underweight