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Henderson International Income beats new benchmark

221028 HINT

Henderson International Income Trust (HINT) has published its annual results for the year ended 31 August 2022, during which it provided an NAV total return of 6.3% (debt at fair value) and a share price total return of 7.8%. In comparison, HINT’s new benchmark, the MSCI ACWI (ex UK) High Dividend Yield Index (sterling adjusted), which was adopted as it better represents HINT’s objectives, generated a 6.6% total return over the period, while its old benchmark, the MSCI World (ex UK) Index (sterling adjusted), returned 0.6%. During the year, HINT has paid total dividends of 7.25p per ordinary share, an increase of 15% on the previous year.

While the portfolio had no direct exposure to the conflict in Ukraine, in terms of Russian or Eastern European listed companies, the war has particularly impacted the valuation of European equity markets and, therefore, some portfolio holdings. The inability of China to find a solution to the pandemic has meant that Far East growth is lower than the manager expected, which has been a drag on the Far East exposure in the portfolio. However, equity markets have rotated towards less economically sensitive companies, including those in the pharmaceutical, consumer staples and telecommunications sectors, to which the portfolio has significant exposures. These defensive stocks have been HINT’s strongest performers. The increased energy exposure has also been a strong contributor to absolute performance. Stock selection was a positive contributor to performance of 2.9% and gearing contributed 2.9%, but asset allocation had a negative impact on performance of 5.3%, primarily as a result of being underweight the US market and US dollar.

The Chairman, Simon Jeffries, comments that the decision taken a few years ago to take on a tranche of low fixed-rate debt to 2044 is looking increasingly prudent now that interest rates are rising.

Income generation

Despite all the economic and political uncertainty, the portfolio’s income generation was strong. Financial services regulators removed restrictions regarding dividend distributions, which were imposed during COVID. This allowed many companies to pay the dividends that were suspended in 2020/21. Commodity prices have generally been higher than expected over the year, which has benefited the portfolio’s materials and energy holdings’ earnings, and this has translated into higher than expected dividends. Currency trends have also been positive for dividends as sterling has weakened against a number of currencies, particularly during the second half of the year, and dividends are all paid in foreign currencies.

Reduced management fee

HINT’s board has agreed a reduction in the management fee to a single rate of 0.575% per annum with effect from 1 September 2022 (the first day of the current financial year). The previous fee was 0.65% per annum of net assets equal to or below £250m, and 0.60% for net assets above £250m. Since inception, management fee reductions combined with the increase in the size of the trust have been the two principal factors that have led to a fall in the ongoing charges ratio from 1.38% (as at 31 August 2012) to 0.83% this year. HINT’s board says that it is willing to issue further shares at appropriate times to provide greater liquidity and to lower further HINT’s fixed costs per share.

Earnings and dividends

HINT’s total dividend increased by 15% from 6.30p to 7.25p per ordinary share for the year to 31 August 2022. This comprised a first, second and third interim dividend of 1.80p per ordinary share, and a fourth interim dividend of 1.85p, which will be paid on 30 November 2022 to shareholders on the register at 4 November 2022. HINT’s revenue returns increased year-on-year by 23% to £14,441,000. A combination of strong underlying dividend growth and currency appreciation when compared to sterling means that £232,000 has been added to revenue reserves.

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