Henderson International Income’s European bet pays off – Henderson International Income says that, for the year ended 31 August 2017, its net asset value (on a total return basis) increased by 18.8%. The return on the share price (on the same basis) was 19.3%. These returns compare to a total return of 19.1% for the MSCI World (ex UK) Index (sterling adjusted). They have announced a dividend increase from 4.65p to 4.90p per ordinary share for the year to 31 August 2017, an increase of 5.4%.
Ben Lofthouse’s manager’s report says that dividend growth for the portfolio has been driven by both earnings growth and increases in the proportion of earnings paid out as dividend. Some of the largest increases in dividends have come from financial services companies, such as Netherlands bank Van Lanschot, and French banks Natixis and BNP Paribas. He says that the combination of stronger balance sheets and clearer regulatory requirements regarding capital levels are allowing these companies to distribute larger dividends. Other companies that significantly increased dividend pay-outs include technology company Samsung, logistics operator Deutsche Post, soft drink distributor Coca-Cola European Partners and US retailer Best Buy. Here, the dividend growth is being driven by earnings growth.
Turning to capital performance, Europe’s economic recovery has started to pick up over the last twelve months. As a result many of the strongest performers in the portfolio were European stocks, particularly economically sensitive ones such as banks ING, Natixis and Van Lanschot. Another strong performer was Italian utility, Enel, which is in the process of being turned around by new management. The turnaround has taken a few years but this year it is starting to reflect in the share price.
China is another region that investors have had concerns about, and where equity valuations had become very depressed. The team added exposure over the year, and some of the new positions have already been amongst the top contributors. Sportswear manufacturer and retailer Anta Sports has performed very strongly as sales and earnings have accelerated, as has the online auto marketing company Autohome.
The demand for some electronic components has risen dramatically and the portfolio has benefited from this via holdings such as Taiwan Semiconductor Manufacturing, one of the world’s largest semiconductor companies, and Samsung, which not only manufacturers phones but also is a world leader in screens and memory.
Not all of the portfolio has benefited as much as they had hoped from these changes in technology. The portfolio has significant exposure to the telecommunications sector. Ben says that the need for reliable communication is greater than ever and data volumes are increasing dramatically, unfortunately a combination of regulation and undisciplined competition is impacting companies’ ability to monetise this demand. This has kept a cap on share price performance for the likes of Portuguese telecom operator NOS, and Israeli operator Bezeq. The holdings are delivering high dividend yields and remain attractively valued therefore exposure to the sector has been maintained. Nielsen, which helps companies record the popularity of TV programmes and consumer goods has also been more impacted than expected by the changes in customer’s behaviour as they try to adapt to ways of marketing and consumption of products.
HINT : Henderson International Income’s European bet pays off