Henderson Diversified Income produces modest NAV return – Henderson Diversified Income Trust has published results for the year ended 30 April 2018. The net asset value total return per ordinary share for the year ended 30 April 2018 was 1.8% whilst the share price total return per ordinary share was 4.4% reflecting a widening in the premium to net asset value at which the ordinary shares trade. This weak return reflected market conditions. On 7 September 2017 the board announced its intention to rebase the dividend to no less than 1.10p per ordinary share on a quarterly basis, effective from the dividend payable in December 2017. This represented a reduction of 12% in the quarterly dividend and assumes that there is not a further significant fall in market yields.
The managers say that the portfolio produced a modest positive net asset value total return of 1.8% reflecting a continued healthy income stream offset by a 2% erosion of the capital value of the assets.
The managers say that “The investing environment was benign in the first half of the year to 30 April 2018 but volatility became more challenging in the second six month period. This reflected developments in non-credit markets: an equity volatility spike in early February 2018, a rapid rise in short dated US government bond yields and sharp depreciations in emerging market currencies to name a few. Fundamental changes in corporate bond and loan markets moved at a more glacial pace. We continued to spend much time thinking about the disruption of industries driven by technological change and a more austere consumer environment in many countries. In addition, elements of the credit market suggest a build-up in leverage which requires us to be vigilant to the risks. For example, lower quality investment grade bonds as a % of the market and the leverage levels in the syndicated loan market. Typically however, a rise in default rates requires a sharp economic downturn or commodity crash something which it is difficult to see with more than a six month window.
The asset allocation remains focused on high yield bonds, with 10% in floating rate loans and around 24% in investment grade bonds. The preponderance of fixed rate coupon bonds and a relatively low floating rate element reflects our scepticism that we are entering a regime shift for growth or inflation. It also reflects the fact that current interest rates in the UK & Continental Europe remain relatively unattractive. The recent backtracking by the Bank of England on a hike which had been fully priced for May 2018 highlights how difficult it has been for most central bankers in the developed world to follow the Federal Reserve in a more ‘normal’ hiking cycle. The current guidance from the Bank of England of three hikes over three years is hardly more credible, given how limited such moves are and the inherent lack of visibility over such a medium term horizon.”
HDIV : Henderson Diversified Income produces modest NAV return