Henderson High Income, which is in the throes of a merger with UK Select Trust, has announced results for the year ended 31 December 2016. The benchmark, which is a composite of 80% of the All-Share Index (total return) and 20% of the Merrill Lynch Sterling Non-Gilts Index, returned 15.5% for the year but Henderson High Income returned 8.9% on NAV and shareholders made 7.1%. They increased the fourth interim dividend to 2.325p, making a total of 9.15p per share for 2016, growth of 2.8% on the previous year. A first interim dividend of 2.325p per ordinary share in respect of the year ending 31 December 2017 was announced on 14 March 2017.
The chairman points out that the portfolio comprised a greater proportion of domestically focussed medium and small sized companies than the benchmark, as their potential for total returns was viewed as more attractive. Their share prices were severely impacted by the UK’s decision to exit the EU, with investors initially fearful of a UK recession.
The manager says that the best performing sectors during 2016 were Mining and Oil & Gas. While the company has some exposure to these sectors, via Rio Tinto, BP and Royal Dutch Shell, it did not have enough given the very strong performance from these types of companies. Low commodity prices had put pressure on dividend payments in these sectors which made it hard for the fund to be fully weighted. In fact the Mining sector in aggregate has now cut dividends by GBP3.3bn in the last two years. However, the sharp recovery in commodity prices over 2016 drove the Mining and Oil & Gas sectors to outperform strongly in capital terms thereby creating a headwind to relative performance.
Domestically exposed companies, such as ITV, Greene King and Galliford Try were detrimental to performance. Despite the uncertain outlook, the three companies delivered attractive dividend growth of 24%, 8% and 21% respectively.
Given the weakness in sterling, positions in certain overseas holdings, such as US telecom Verizon Communications and European professional publisher RELX, aided performance. Elsewhere the holding in De La Rue was also positive for performance with the company making good progress on its turnaround strategy.
The fixed income portfolio returned 13.8%, outperforming the 10.6% gain from the Merrill Lynch Sterling Non-Gilts Index. The portfolio’s holdings in large, non-cyclical companies, such as cable company Virgin Media and the RAC, aided performance. As bond yields troughed in August, the portfolio’s exposure to short dated high yield bonds proved less volatile than investment grade corporate bonds, which benefited performance.
HHI : Henderson High Income held back by Brexit