Henderson Far East Income Share Discussion Threads

[superiorshares] 13/10/2022 18:15

Must be getting close to have a punt time

[zac0_4] 30/9/2022 19:33

Maybe of interest - hxxps://audioboom.com/posts/8165862-asia-the-structural-growth-story-remains-intact

[panshanger1] 30/9/2022 08:15

I notice that the allocation to China has increased significantly here

[2sporrans] 02/9/2022 16:21

On the HFEL dividend:

Whist it may well be sustainable, one ought to be aware that not all of the divi. paid out comes from dividend income paid out by the underlying company holdings.

I make it that around 70% comes from those, adjusted up for the gearing.

The remaining ~30% is partly derived from call option writing fees.
I've never been able to work out quite how much but the recent Edison report has this to say:
"The managers may write put or call options to generate additional income dependent on the pricing and attractiveness of the opportunity, and have on average written around 10 options per year since inception in 2006.
In H122, revenue from dividends increased 14.7% on the same period in 2021; however, total income growth was slightly lower at 11.9%, due to fewer options being written."

From what i've been able to divine, something like 10-20% of the HFEL dividend comes either from capital gains [from trades] or from income made at sacrifice of capital gain.
Example of latter is Kerley's selling and buying of holdings, made to maximise the dividend take from them [does he tend to sell XD?]
I guess both gain and sacrifice are crystalised for those call options where the call bargain is struck but the shares sold continue to gain in price...., assuming the asset sold was bought cheaper than the sell from the call.

Don't want to make overly much of why the above eats into the share price performance of HFEL but i expect it does explain a fair lot of price underperformance against peers and the Asian income High Dividend sector.

Generally, the post GFC environment of disinflation [until recently] and extremely low rates and NPV discount rates + easy credit has been unusually advantageous for growth/'long-duration' assets and to the relative detriment of value stocks.
This explains the great majority of HFEL's [and its sector's] poor share price performance over recent years.

Now the game has changed, question is what world will we be in, after the ongoing inflationary-downcycle and monetary tightening [not in PRC or Japan though] is done?
Will it be one more supportive of value stocks v growth?
Until we get there, i suppose one can make the observation that HFEL's distinct relative outperformance - such as orinocor has noted above - may not mean it actually makes a +ve total return, let alone a real one, inflation adjusted for 2022.

Still, it is highly cash generative and for certain long term holders [such as myself] this is, in itself, attractive.

The divi. does seem to be covered ok and there is about a year's divi-cash in reserve or at least was when i last checked some months back.

[2wild] 31/8/2022 16:16

Except of course all but 1, quoted in overseas currencies which have hugely outperformed UK £ since beginning of 2022.

[orinocor] 30/8/2022 17:40

With regards to the discussion on relative performance well based on year to date this is doing better than most. It's down 6% but don't forget the large dividends which is 6% so far, so it's really flat for the year. Some others to compare against albeit not including dividends. HFEL doing better than all of these including the dividends.


DOW -13%
NASDAQ -25%
S&P 500 -17%
FTSE ALL SHARE -5.4%
DAX -19%
CAC -14%
NIKKEI -3.75%
ASX -7.8%

[orinocor] 30/8/2022 16:27

Now at a discount again albeit only a couple of %. Still I'm in again at 276p

[2wild] 21/8/2022 15:18

World markets are up over 30% last five years with dividends reinvested. Remarkable this poorly performing trust is still trading at a premium to nav. Not sure how sustainable the dividend is, RIO cut interim payments by 50% this year. HFEL have paid out more in dividends so far this year than net income received. Although they have historical revenue reserve, this is just an accounting figure, it's not held in cash. They have debt.

[coxsmn] 21/8/2022 12:31

But overall you haven't lost money here either

[zac0_4] 18/8/2022 23:43

I hold this in both my sipp and isa, split pretty much equally. I have a considerable level of investment here. It's my 2nd largest holding. It appears to be going nowhere. At the year end, assuming the share price stays as it is, we will have been paid a dividend yield of 8%. However, we will have given up over 5% of our capital in return. Just looking at total return figures, ie dividends re-invested, over the last 5 years the total return has been . . . wait for it . . . +6.8%. Absolutely appalling! 50% of this will have been sold by the year end. Enough is enough!!!!!!

[peterbill] 18/8/2022 22:32

Thanks for shares mag article.



Interesting Ted talk from Hans Rosling old but still relevant ... growth coming from the far east ? ... Happy to hold.

[scruff1] 18/8/2022 19:13

Goldpig
Thats all very true. However if BHP, Tinto etc, China's economy get into trouble and the Taiwan issue becomes more than a war of words and threats will it really matter where your money is? One of the surprises for me (and even brokers I talk to) is that the market has remained so resilient - thus far.

[scrwal] 18/8/2022 12:51

I am currently out but purely because I am taking a punt on I3E. If things pay off I shall be back in, hopefully for me at a lower price.

The yield should be sustainable for the next few years but after that who knows - there is a buffer which was 50% of annual dividends at the end of 2021. Management expect the 2022 divi to be covered by underlying earnings.

[goldpiguk] 18/8/2022 12:44

Hi Una,

Thanks for posting the 'Shares Mag' article. I don't think anyone could possibly argue that a yield of over 8% looks very attractive.

The real question is about the longer-term sustainability of the HFEL dividend. In the short term, there is already 5.3p of revenue towards the expected 6.0p November dividend, so that looks safe.

However, the dividend does look stretched and it would take very little for it to need rebasing. The write-up in shares mag looks as though it is based on the HFEL factsheet published on 20th July rather than any real analysis by the writer - and the reference to a discount to NAV suggests the author only took a cursory glance at this company. (Any investor following HFEL would know that in recent months it has more often than not traded at a premium to NAV.)

The risks to medium/longer dividend sustainability arise on several fronts.

Rio Tinto and BHP remain two of the top ten holdings. Rio Tinto recently slashed its very generous dividend by more than half due to cooling demand from China, rising expenses, and labour shortages. Although BHP increased its already huge dividend by 8% this year, it too is expected to be cut going forward. HFEL would find it next to impossible to replace these investments with others that could compensate for the expected reduced income in 2023.

The other headwind facing HFEL is China's zero covid policy resulting in whole regions being shut down. This combined with its worst heatwave in 60 years is having a major impact on the Chinese economy. (July Factsheet 23.9% of the portfolio is in China.)

hxxps://www.cfodive.com/news/china-economic-ills-persist-covid-19-lockdowns/629710/

Additionally, the Taiwan issue has not gone away, which is why I have a fairly low weighting to the region.

I continue to hold 5,000 HFEL shares in my ISA, but unlike many here I expect an eventual rebasing of the quarterly dividend.

Goldpig

[melton john] 18/8/2022 10:00

The market doesn't seem to have a lot of confidence I'm afraid MRF. I only held for a year having entered at over £3, adding capital losses with dividends paid out my total loss was bearable so I took the hit. I may come back when things look a bit clearer in the far east. So this probably means the price will start to rise now.

[my retirement fund] 18/8/2022 08:19

has anyone had any thoughts on how safe it the 8.5% yield here may be?

[panshanger1] 18/8/2022 08:09

Thanks for posting Una Long term hold for the dividend and diversification for meAlthough the overall returns have been poor in recent years GLA

[unastubbs] 18/8/2022 07:41

Shares Magazine today

EASTERN PROMISE Henderson Far East Income (HFEL), which as of the end of June had £463 million of assets, describes itself as a ‘strong diversifier for income and growthseeking investors’. The trust uses a value-driven approach to invest both in companies with high and sustainable dividends and in companies with the potential to grow their dividends. ‘High dividends are for today, while rising dividends are for the future,’ says manager Mike Kerley, who has been at the helm since 2007. Companies which are growing their dividends tend to get rerated over time, generating capital gains for the trust, adds Kerley. The trust invests in developed and emerging Asian markets, with a strong focus on cash flow as a measure of both sustainability and profitability as it is cash flow which ultimately finances dividends. Asia has the potential to increase payouts at a faster rate than other regions, argues Kerley, because dividend levels are currently low by international standards. The sector allocation at the end of June was heavily skewed towards financial and telecoms companies, which have a combined weighting of over 40%, although technology and energy stocks also had a significant presence at 13% and 12% of the portfolio respectively. The trust pays quarterly dividends, and this year has so far distributed a total of 17.8p across three interim payments. While it hasn’t confirmed as much, the fourth interim dividend to be paid in November is likely to be 6p in line to maintain the trust’s long history of rising payouts. That would equate to an annual yield of 8.7% based on a 275p share price, and while the discount to net asset value is towards the low end of its recent range, a yield of more than 8% looks very attractive. We think this level of dividend is sustainable.

[panshanger1] 04/8/2022 07:29

Asian markets up / steady overnight

[jonathb] 04/8/2022 07:29

y here goes..

[jfinvestments] 04/8/2022 07:23

I think there could well be a further hit today with China reacting to Pelosi visit.https://www.theguardian.com/world/live/2022/aug/04/china-expected-to-begin-live-fire-military-exercises-near-taiwan-coast-in-wake-of-pelosi-visit-live?CMP=Share_AndroidApp_Other

[zac0_4] 03/8/2022 20:09

I'm beginning to lose patience here. I've held it for years. In fact so long I've received dividends to the value of £10,006. As for my capital . . . well that's down £10,011!! What's the point? At the start of this year the yield going forward was 8.03%. To date this year we've given away 6.80% in capital erosion! It's now becoming a dog within my portfolio!!

[tim 3] 03/8/2022 19:33

Yes my other IT is mrch which am much happier with.Like you will continue to hold here but definitely not adding not a fan of averaging down in these situations anyway as you are basically adding to your losing investments.Better to add to your strong performers when they pull back a little in my experience.

[jfinvestments] 03/8/2022 18:43

-11% down in the last year isn't too bad given the losses some investment trusts have been hit with. It's tough with the 20% weighting to China for this not to be volatile going forward. It is interesting comparing it with other high yielders: EAT and MRCH. MRCH the strongest performer over the 1 year and 5 year.It doesn't look pretty on the max chart. I think I will hold for the dividend over time, but I'll be holding off from further large purchases here and looking to buy into MRCH at 5% yield and more (where it was a short while ago)- especially if there is a dip in Autumn.

[tim 3] 03/8/2022 15:17

That charts looks horrible too, through support.