Henderson Far East Income (HFEL), the highest yielding investment trust in the AIC Asia Pacific Equity Income sector and its worst performer, has raised its dividend for a 19th consecutive year and added more to technology holdings where it has been underweight.
In the year to 31 August the £589m 10%-yielder paid total dividends of 25.1p per share, up 0.8% from 24.9p last year. A 12% rise in earnings per share to 28.16p ensured the pay-out was covered about 1.1 times with £6.2m added to revenue reserves, lifting them to £36m.
However, a 26.1% total underlying investment return of net asset value (NAV) plus dividends came in well below the 36.6% total return of the MSCI AC Asia Pacific ex Japan index.
Longer-term performance remains weak with a five-year total shareholder return currently of 37.7% compared to the 67.4% sector average.
However, demand from income investors saw the shares continue to trade at a premium, ending the year at 4.5% above NAV. This enabled the trust to issue 51.3m new shares, raising £130.9m, and leaving shareholders with a slightly higher total return of 26.4%.
Sat Duhra, who took over as lead manager when Mike Kerley retired in June 2024, said the underperformance reflected the trust’s income focus, which leads it to own more dividend-paying companies.
Market gains, by contrast, were concentrated in a handful of AI-related technology stocks. He argued that “Asia is increasingly being rewarded not simply for being cheaper”.
He favours “businesses where AI demand is visible in margins and cash conversion” but warned of “crowded positions, leverage and harder questions about returns on investment”.
During the year Duhra significantly repositioned the portfolio towards North Asian technology:
- Technology rose from 24.4% to 33.9% of the portfolio, but still below the benchmark’s 40.8%, while financials fell from 33.5% to 26.9%.
- South Korea rose from 12.6% to 20.5%, Taiwan from 17.9% to 22.5% and Singapore from 7.2% to 11.7%.
- China fell from 29.9% to 24.9%, Indonesia from 4.9% to 1.8%, and India was sold out completely.
- He added to Samsung Electronics, bought CATL, Keppel and ASUSTeK, and reintroduced BHP and Woodside Energy.
- Exits included HDFC Bank, Alibaba, Trip.com, Bank Mandiri and Astra International.
Chairman Ronald Gould remained confident about Asia’s prospects. He said the region “sits at the centre of the global expansion in artificial intelligence”. He believes the trust is well placed to “deliver an attractive combination of income and capital growth for shareholders over the long term”.
Following a recommendation by the Association of Investment Companies, the SST board have proposed a change to the trust’s articles to be voted on at the annual general meeting on 19 January. This would prevent a large shareholder from voting itself in as fund manager, requiring that only independent shareholders vote on the appointment. This follows campaigns by Saba Capital to replace the boards of several UK trusts which have been seen as a prelude to the activist hedge fund seeking to win the mandate and control of their assets.
Our view
Matthew Read, senior analyst at QuotedData, said: “While Henderson Far East Income’s NAV performance was strong in absolute terms, its income mandate has inevitably limited its exposure to the technology giants that have been driving Asian markets recently. Unfortunately, this underperformance adds to a longer-term performance gap that is much harder to ignore. On the plus side, the dividend was comfortably covered by earnings for the year, although much of the improvement came from a near-tripling of option-writing income, boosted by unusually favourable market conditions that may not persist. That said, the manager’s increasing focus on companies capable of growing both earnings and dividends, particularly as corporate reforms across Asia encourage greater distributions, should help. Regardless, HEFL’s hefty yield continues to appeal to investors allowing it to issue a significant amount of stock.”
