Henderson Diversified In... Share Discussion Threads

[davebowler] 17/1/2010 11:51

Good news for our fund re. increased liquidity;

[davebowler] 06/1/2010 13:59

washbrook, I take your point but investors are overpaying in buying New City at a premium in my view when this is at a discount - the difference between the two, premium/discount levels, being 10%.

[washbrook] 05/1/2010 12:07

Although I own other Henderson IT's.
I much prefer New City High Yield fund.
Three years ago I held City Merchants but when Richard Lockwood their manager left,I sold.
He is now the manager of New City High Yield Fund.

CLICK ON GRAPH TO ENLARGE

[davebowler] 05/1/2010 10:33

As at close of business on 31st December 2009, the unaudited net asset value per
share, calculated in accordance with the AIC formula (including current
financial year revenue items) was 76.8p.

[davebowler] 01/1/2010 16:08

Interesting blog on Bonds

[davebowler] 23/12/2009 09:43

Nav Back to Aug '08 levels

[davebowler] 21/12/2009 14:02

Last para is interesting albeit talking about U.S. MBS /secured loans

[davebowler] 18/12/2009 16:28

Fund Manager's Commentary - November 2009

November was an extremely active month for credit markets in Europe. The focus of attention early in the month was the announcement of Lloyds' enhanced capital notes (ECNs) exchange offer. Holders of subordinated Lloyds' bonds, who faced the prospect of coupon deferral as a result of EC State Aid rulings, including this company, were given the opportunity to exchange into a higher coupon bond in a par-for-par exchange. Not surprisingly, this offer was extremely well received as the downside of this offer (the risk of being converted into equity should Lloyds' core Tier 1 ratio fall below 5%) was deemed a sufficiently remote risk. We traded around this event, with the effect of reducing our weight in one of the exchanged bonds, but overall increasing our Lloyds exposure by adding to our positions in 'must pay' Tier 1 Lloyds bonds (unlikely to be exchanged into the new ECNs).

In addition to this major corporate action, the new issue market for both investment grade and high yield corporate bonds was in full flood during November. We bought new bonds issued by William Hill (7.125% coupon), Virgin Media (8.875%), and UPC Germany (bonds with coupons of 8.125% and 9.625%), Segro (6.75% coupon) and Tate & Lyle (6.75% coupon). To fund these purchases, we sold down positions in British American Tobacco's 9.5% 2018 bond issued at the end of 2008, which had rallied up to 127.5p in the pound. We also took profits in a Fresenius bond issued in early 2009 at 112.75p in the pound. This fits with our strategy of recycling cash out of bonds that have performed well, and where capital appreciation is limited by their high government bond sensitivity, into bonds where there is greater potential for capital appreciation due to declining credit risk and a large yield cushion against government bond yields. In addition to the transactions reported above, a switch out of an underperfoming loan, Wheelabrator, was undertaken into a bond issued by insurance company Royal London.

[davebowler] 15/12/2009 13:17

Performance
....................................1m.. 3m .. 6m .. 1y
Henderson Diversified Income Price -1.8 +3.9 +17.4 +17.4
Henderson Diversified Income . NAV +3.5 +11.2 +32.8 +47.0
Global High Income ................. -4.1 +8.7 +25.2 +58.9

[davebowler] 10/12/2009 10:35

From trustnet
Name........................ price... disc . nav 1mth 3m .6m( NAV move)
City Merchants High Yield Tst 148.00 -0.8 149.14 2.5 14.2 42.
Henderson Diversified Income 65.00 --13.1 74.80 1.7 11. 33.8

[kiwi2007] 10/12/2009 09:34

The people who appear to be best placed to get rich from this IT are the managers.

[davebowler] 09/12/2009 19:55

If you believe Interest Rates are due to rise from the lowest they have been for 300 years then a starting yield of 7%ish is pretty good especially if you add in the margin of safety that buying below asset value gives you.
This article makes a strong case in favour of owning secured variable rate bonds.

[bench2] 08/12/2009 23:47

Latest div 1.25p up from 1.1p so annual div of 5p thus implied yield of 7.5% at 66.7 p offer . Stock is ex div tomorrow so lets see if stock offered at 65.45p . Looks too cheap relative to the other 3 fixed int inv trusts . 12.3 % discount to 74.6p NAV which excludes acc rev . 14.3% discount to NAV inc rev ! I think the board may well do something about the expense ratio .

[ptolemy] 07/12/2009 09:08

dave,
I continue to sit on the sidelines (having held a number of times). I understand Patullo's logic but question what is the point of holding at these levels? Perhaps because the price is below NAV? Or just as a portfolio diversifier? But on the main criteria of yield, HDIV is yielding only 6.5%, with a TER of 1.5% and a rating of BB-. That places it with a lower yield, a higher cost to hold and a lower credit rating than, say, BP, a host of other FTSE big names, or some other low volatility investments.

[davebowler] 05/12/2009 10:54

Gilt market tension favours higher credit exposure
John Pattullo
John Pattullo joined Henderson Global Investors in 1997 and is Head of Retail Fixed Income, responsible for UK Retail.
| 1 December 2009 at 10:00
What do the UK budget, the Bank of England and an impending general election have in common? Answer: they will all have a bearing on the fixed income market over the coming year.

The UK is expected to borrow £175 billion in the 2009/10 fiscal year. Whilst the amount itself is serious, of greater concern is the structural deficit between spending and revenue raising ability that it represents. Regardless of the austerity of the next parliamentary term, the coming years are likely to be characterised by heavy net gilt supply to fund the deficit as the chart below shows.

Huge increase in gilt supply

As the government is forced to compete more aggressively for funding, the yields on gilts are likely to rise. During 2009 there has to some extent already been a creep up in gilt yields, although this has been artificially repressed by central bank buying as part of the quantitative easing (QE) programme. After a strong 2008 the performance of gilts has been poor as represented by the FTSE Brit Govt All-Stocks Total Return Index, which rose a mere 0.6%1 in the first 10 months of 2009 – the decline in gilt prices from rising yields all but cancelling out the income return. In contrast, the Henderson Strategic Bond Fund rose 27.9%1 over this period, justifying our decision to favour credit-sensitive bonds.

To say that we remain wary of gilts would be an understatement. We believe that there has been a fundamental transfer of risk from the private sector onto the taxpayer/public sector as a result of the bank bailouts. With net supply likely to remain high we do not view the current yields on gilts as good value. It is interesting to note the dichotomy between the rising gold price (which may indicate investor fear of inflation and monetisation of public debt) and low government bond yields.

The second factor, the Bank of England, relates to its role in controlling monetary policy. We do not expect interest rates to rise in the near term since it would be counter-intuitive for the Bank to raise interest rates – a monetary tightening action – while it is still purchasing bonds in its QE programme – a monetary easing action. Nevertheless, as a report by Citigroup Global Markets pointed out in November, the Bank has been poor at forecasting – with a tendency to underestimate inflation and economic growth. This could cause discomfort in the first quarter of 2010 if the annual change in consumer prices breaches the 3% upper limit. Given the government's failure to control the budget deficit, it does not bode well for gilts for the central bank to appear to be slipping in its role as guardian of the value of money. Moreover, it remains to be seen whether the Bank can ultimately reverse QE without ill effect.

The third factor, the General Election, might seem a fait accompli but there is increasing nervousness about the result. Six months ago it was a given that the incumbent government would take a drubbing, yet the November by-election victory for Labour in Glasgow North East may suggest otherwise. While the result in this traditional Labour stronghold was never in doubt, the poor showing of the other parties highlights that the Conservatives need to get people out to vote if they want to win a comfortable majority. The worst outcome for the country in economic terms would be a hung parliament since it would delay serious effort to tackle the budget deficit and this could lead to a currency/funding crisis with negative consequences for gilts. In this environment, the high yield market may be a haven of relative safety given its heavy euro-denominated bias.

These three considerations chime neatly with our view that there is a "value chain" in the debt markets and that as we move through the economic cycle different types of bond will become relatively more attractive. The table overleaf reveals the direction of credit sensitivity, interest rate sensitivity and liquidity for different types of debt.

Credit value chain

Given our expectations of a creep up in gilt yields and economic improvement we believe that a low duration strategy that seeks to favour credit risk and avoid interest rate risk is appropriate. Consequently, we continue to favour financials, high yield, loans and Asset Backed Securities over gilts and high-end investment grade. Defaults on high yield bonds may currently be high but this is likely to be yesterday's story by tomorrow. Moody's predicts the global speculative default rate will drop sharply from an expected peak of 12.5% in December 2009 to 4.2% by October 2010. The environment for corporate earnings ought to improve as the global economy recovers and with it the debt-servicing capabilities of companies.

Our preference for bonds with a low duration is reflected in where we see value within the corporate bond markets. Last year it was possible to buy Vodafone bonds trading at a 4 percentage point spread over gilts. Today, the spread is 11/2 percentage points. The inherent interest rate risk from the lower spread inclines us to view these bonds as little more than a coupon with no capital upside. This is true of much of the industrial investment grade where tighter yields and longer maturities mean they contain high duration risk. Our preferred investment grade plays are financials and cross-over credit where higher spreads indicate ongoing value. We continue to like high yield bonds although it is necessary to be selective because some recent issues have been priced tightly. For example, William Hill, the bookmaker rated sub-investment grade, issued a bond with a yield to maturity of 71/4% in November yet there are investment grade bonds in the secondary market offering higher yields.

We are also using UCITS III sophisticated powers to achieve the desired level of risk tilt in the Henderson Strategic Bond Fund. Through the use of credit derivatives the fund is long credit exposure whilst the use of gilt futures means the fund is relatively short interest rate risk. Consequently, the duration of the fund at 30 October 2009 was only 3.2 years but we are seeking to lower this further.

We stated throughout 2009 that gilts offered poor value and that better returns would come from credit-sensitive bonds. As this piece highlights, with several potentially negative events on the horizon for the gilt market our preference for low duration remains undimmed. As we progress through the economic cycle, however, we will rotate the holdings of the portfolio according to where we see value on the "value chain".

[davebowler] 14/11/2009 18:03

As at close of business on 12th November 2009, the unaudited net asset value per
share, calculated in accordance with the AIC formula (including current
financial year revenue items) was 75.3p.

[davebowler] 09/11/2009 13:49

The idea is to sell off the top quality ones at par and reinvest in the poorer quality ones at up to 80p in the £ so as to keep the yield reasonably high with enough discount in the price to cover default risk.

this is worth a listen;

[topvest] 08/11/2009 18:53

This looks an odd strategy in these times:

Going forwards we will continue the gradual trend of taking profit on best quality investment grade and high priced loans and redirecting capital towards lower priced secured loans and higher yielding securities.

Maybe they know what they are doing, but maybe sticking to top quality bonds would be a sensible strategy. I was tempted to buy some more, but think I will watch on the sidelines. Happy to hold what I have though.

[davebowler] 08/11/2009 13:38

Fund Manager's Commentary - October 2009

During October, the trend of the least liquid and most stressed fixed interest securities rallying after more liquid and transparent assets continued. Secured loans, high yield and subordinated banking bonds all rallied between 2% and 3% during the month. Investment grade and gilts were more muted, having previously done much of the running in the spring and summer. This helped the company considerably as it is more exposed to the former asset classes. The gradual process of normalisation in markets continues and we saw high yield issuance and continued restructuring in the loan market. Mindful of the threat of coupon deferral on some Lloyds bonds, we trimmed a few and reinvested in Royal London 6.125% perpetuals. We expect an announcement regarding coupon deferrals for RBS and Lloyds this week.

On the loan portfolio we continue to look to add new loans at attractive discounts and recently added a small exposure to Alliance Boots. Going forwards we will continue the gradual trend of taking profit on best quality investment grade and high priced loans and redirecting capital towards lower priced secured loans and higher yielding securities. Not only will this reduce the interest sensitivity of the company, it will also enable us to allocate capital into areas of better value.

[ptolemy] 06/11/2009 16:21

Why is the yield too high when >50% of the portfolio is rated as junk and two of its loans blew up in the last quarter?

I've bought and sold a few times this year but now I think its fully priced at 4% above treasures and less than 2% above, for example Shell/BP.

So, why is the yield too high?

[bench2] 06/11/2009 11:08

Agree HDIV now too cheap on circa 10% discount , also close to going XD the 1.1p quarterly paid on 31 Dec . I paid 66.9p for 20k yesterday ...but yield in the FT of 8.8% is too high , based on current quarter yield is 6.57%.

[davebowler] 06/11/2009 10:38

HDIV is now 9% below asset value whereas CHY is 6% above asset value- crazy!

As at close of business on 4th November 2009, the unaudited net asset value per
share, calculated in accordance with the AIC formula (including current
financial year revenue items) was 74.7p

[davebowler] 09/10/2009 10:55

I am setting this up as a possible site for LLPF NWBD CPBA CPBB NABA etc contributors
Look under epic code PIBS