Henderson High Income’s results for 2024 show an NAV return of 9.4% and share price return of 10.8%, both ahead of the company’s benchmark (80% of the FTSE All-Share Index (total return) and 20% of the ICE BofA Sterling Non-Gilts Index) which returned 7.9%.
The dividend rose from 10.35p to 10.60p (making it 12 years in a row of dividend increases) and that was covered by earnings of 10.74p. The ongoing charges ratio fell from 0.86% to 0.74%, helped by the larger size of the company post the merger with Henderson Diversified Income. We reported on the plans for fees on the trust yesterday.
[There is a continuation vote at this year’s AGM which we’d expect shareholders to back.]
The discount at the start of 2024 was 7.7% and finished the year at 7.0%, compared with the average discount at the end of 2024 of 5.6% for the UK equity income sector. During the course of the year the discount widened, then narrowed in as the year drew to a close, but in the early part of 2025 had widened out again. In line with other trusts in the sector the board has commenced buying back shares and as at 24 March 2025 the company has purchased 960,130 shares representing 0.56% of the issued share capital. The shares will be held in treasury.
Extract from the manager’s report
Asset allocation [overweight equities and underweight bonds relative to the benchmark] had a positive impact on performance due to equities outperforming. Gearing also aided performance given the positive market backdrop.
The equity portfolio gained 8.7% on a total return basis during the year, behind the 9.5% return from the FTSE All-Share Index. Within financials, the portfolio’s holdings in NatWest, 3i and Intermediate Capital were positive for performance. NatWest delivered strong profit growth in the period benefitting from higher interest rates in the UK and stronger margins given the benign competitive environment, especially within savings and mortgage products. The company’s robust capital position and strong cash flow also led to good dividend growth and a directed buyback which significantly reduced the government stake. Private equity group 3i has been a very strong performer for the Company over the longer term, driven by the success of its portfolio holding Action, the European discount retailer. Last year was another good year for the business given the strong profit growth delivered. Alternative asset manager Intermediate Capital, which specialises in private credit markets, performed well over the year as new fund raisings for its strategies beat expectations.
Within the consumer staples sector, the portfolio’s positions in tobacco companies, Imperial Brands and British American Tobacco, and soft drink manufacturer Britvic were positive for performance. Both Imperial Brands and British American Tobacco benefitted in the period from delivering resilient earnings but also buying back their own shares at very attractive valuations. Britvic produced strong results in the period and then was subject to a bid approach from Carlsberg, as it looked to diversify away from beer and consolidate its European Pepsi bottling operations.
On the negative side the portfolio’s holdings in Burberry, PageGroup and MONY Group (owner of MoneySuperMarket.com) detracted from returns. Burberry’s profits were significantly impacted from a slowdown in luxury goods demand and a failed strategy to elevate the brand. While it was the correct decision for the company to change strategy and Chief Executive Officer, the turnaround is likely to be protracted and with the suspension of the dividend we decided to exit the holding. Recruiter PageGroup was weak during the year as profits came under pressure from a lacklustre global employment market with low candidate confidence impacting job turnover. MONY Group’s share price was weak as investors feared that an easing in insurance premium price inflation would lead to fewer consumers switching their insurance providers. Elsewhere, not holding Rolls-Royce was detrimental to relative performance. Rolls-Royce is a large constituent of the benchmark and performed strongly in 2024 meaning not holding the company, due to the lack of a dividend, contributed negatively to relative performance against the benchmark.
The fixed income portfolio rose 6.7% on a total return basis during the year, outperforming the 1.7% return from the ICE BofA Sterling Non-Gilts Index. The portfolio’s exposure to short duration bonds aided relative performance given these bonds are typically less vulnerable to rising bond yields. Also, the holdings in high yield bonds aided returns given spreads in this area of the bond market tightened significantly as global economic growth improved. In particular, holdings in bonds issued by Bupa, Center Parcs, the Co-op and Ziggo were positive, while bonds in Direct Line rose significantly after the bid approach from Aviva.
HHI : Asset allocation and strong fixed income returns boost Henderson High Income
