Henderson International Income held back by US underweight

Henderson International Income held back by US underweight – Henderson International Income Trust has published results covering the year to the end of August 2018. Its NAV total return for the period was 5.9% and the return to shareholders was 5.6%. These figures are well behind the return on the MSCI World (ex UK) Index, which returned 13.4%. The board has announced a dividend increase from 4.90p to 5.30p for the period.

The chairman says that a lack of US exposure held back returns relative to the benchmark as other areas, such as Asia, have been affected by talk of a trade war.

Extract from Ben Lofthouse’s manager’s report

“The portfolio has not held tobacco stocks, and in this period has benefited from not holding Philip Morris, which has been impacted by concerns around new competitors in the industry. Apple and Amazon were not held in the portfolio and have performed strongly. Technology shares have been particularly strong over the last few years and have become a much larger driver of the US market. Whilst the portfolio has not held the above specific stocks, it has benefited from sizeable holdings in Microsoft and Cisco Systems, which are exposed to increased information technology spending in response to technological advances, in particular cloud computing trends. Shares of printer manufacturer HP rallied as a result of its restructuring plans and subsequent earnings improvement. The portfolio has a significant exposure to the oil and gas sector. These holdings have benefited from a renewed focus on efficiency and the recovery in the oil price. The positions were added on the understanding that management teams were focusing on restructuring and cash flows, which is starting to bear fruit. The sector has benefited recently from a strong oil price due to supply constraints. Norwegian integrated oil company Equinor (previously Statoil) and oil services company Tenaris have rerated significantly over the last year as a result of these factors. Anta Sports, a Chinese sportswear manufacturer and retailer, is benefiting from growth in the disposable income of the Chinese consumer.

Regional equity market performance has not been as broadly spread as dividend growth. Several of the most significant relative performance detractors have been impacted by geographical exposure rather than to corporate news flow. The chart in the annual report highlights the divergence between the US equity market and the rest of the World since April (simplified here to Emerging Markets and Europe, Africa and the Far East (‘EAFE’)).

There has been no significant change in relative economic trends between the regions, but there is evidence of substantial loss of confidence in their perceived future paths of growth. This loss of confidence has been caused by a number of factors. The US President’s focus on trade terms and the introduction of trade tariffs has impacted investor sentiment regarding net exporting regions, including Europe and China. With regard to European markets the new Italian coalition government’s desire to use fiscal policy to stimulate growth has raised questions about European stability. The portfolio has a significant exposure to European companies on the basis that many of them trade at more attractive valuations than counterparts listed elsewhere in the world, and have significantly higher dividend yields. During the second half of the year this asset allocation has been the biggest single detractor to performance relative to the benchmark. Although the portfolio has not held any Italian financial companies, banks have been sensitive to developments in Italy and the broader sector sell off has impacted positions such as ING and Nordea. Defensive companies such as Deutsche Telekom and utility Enel, have also been affected by the sell off in European markets. Since the Company’s 2011 launch we have seen similar periods of uncertainty, which have generated good opportunities for patient investors to buy good companies at attractive valuations. Some of the detractors have more stock specific causes such as Pandora and Prosegur Cash.”

If you’d like to see the manager present on the trust, details of the AGM are here

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