Henderson Far East Income Share Discussion Threads

[aleman] 24/8/2021 21:12

2sporrans
24 Aug '21 - 15:14 - 804 of 807
0 2 1
Thanks for posting the latest Edison take Speed.


"Option premium income in H121 was also slightly ahead of H120, making up 11.4% of total income compared with 10.7% a year earlier. "

From memory, the dividend income from underlying investments, is only about 4.5% for a share price of around 330p, ~7% divi yield out of HFEL. So, this options trading income explains a fair chunk of the balance.

4.5%? Can you elaborate? It seems too low. Investment income was £35m and option income £3.4m on investments valued at £424m at year end. Dividend was a little under £32m. I have to admit that I keep looking at their investments and wondering how they get income so high. But they've been doing it for years.

Writing covered calls is a common way for some income funds (and bigger private investors) to increase income. BERI do it a lot often approaching half income at times around the bottom of the economic cycle when some regular dividends get cut. Some investors there over the years have loved the bigger than sector income and then complained when its capital value did not follow it's sector upwards in upswings. Of course, their covered calls get crystallised when that happens, so much of the capital gain on some buoyant holdings then goes to the call holder and BERI then have to replace that income in a more expensive market. BERI did/do it a lot more than HFEL seems to do - maybe up to 3 or 4 times more. Presumably HFEL is boosting its income only modestly, and maybe risking only 1/4 or 1/3rd of the missed capital gain of sector rises that BERI has seen over the years.

(I've held BERI (BRCI as was) a few times. I recently sold above 100p as I felt new holders were chasing it too high as the sector did well and they hoped for a dividend rise and NAV gains but heavy call selling makes for a more stable income at the expense of giving up some gains in good times. Sure enough, BERI has underperformed and the shares fallen back a bit. Expect HFEL's income to be a bit higher and more stable than its sector but to underperform slightly in upswings - but to nothing like the degree BERI has done through its existence. I'm happy with that.)

[tim 3] 24/8/2021 18:51

Benefiting from a rebound in the Far East overnight today.

[2sporrans] 24/8/2021 15:36

Noting the comments on top holdings - thanks:

Earlier this year, M kerley decided to buy back into Chinese Banks - again, following an abandoned foray during 2020 - around Q3 from memory.
3 banks i think. 2 were top 10 holdings up until end of June this year.

So, at end of June, the largest HFEL holding was China Construction Bank with 4.8% weighting [rio 3.9%, BHP 3.8% next in line.] Also Bank of Communications with 2.9% weighting.

Come the end of July, nothing showed on those banks in the top 10 listing.
Hope the sale was as near end of june as possible; the banks fared badly during july.
All sold? Dunno, but strong hunch that's the case. The full listing dates way back, as ever. end of March still, when checked a few days ago.

There has been a portfolio shift from China into Taiwan - as Aleman's list picks up on - since end of June and note those banks replaced by Asustek Computer [3.87%] and CTBC Financial [4.04%]. Yet to evaluate these.

Taiwan has Covid well under control, as do the developed nations of East Asia generally....but i do worry about the Biden Admin. confrontation with PRC heating up.
Could easily show up badly in Taiwan's relations - trade - with the mainland.
At least the latest White house line is to not force the SE Asian nations to "take sides" between PRC and USA.
Maybe things can slowly calm down from here.
Bad news if they don't.

[2sporrans] 24/8/2021 15:14

Thanks for posting the latest Edison take Speed.


"Option premium income in H121 was also slightly ahead of H120, making up 11.4% of total income compared with 10.7% a year earlier. "

From memory, the dividend income from underlying investments, is only about 4.5% for a share price of around 330p, ~7% divi yield out of HFEL. So, this options trading income explains a fair chunk of the balance.
Is it largely income from fees earned for underwriting call options?
What it looks like and guess a lot of those calls never got realised given the tepid share price performance.
The rest of the balance explained [a little] by gearing and so the rest i guess coming from capital gains from trading. That will have nibbled away at the NAV and sp, though not much more than 1% i hazard.

Hmmm.....well 295p share price earns an 8% divi [4*5.9p=23.6p]
So, buying sub £3.00 a very generous income return to stick with.

While i don't expect the income to rise at all fast from here, it does look reasonably secure, providing the world doesn't go pear shaped.
Like the divi. never got cut over past 3 decades.
Going back pre-2006, when HFEL was 'reconstituted', the divi survived the '97/8 Asian debt crisis unscathed; ditto the GFC 2008-9.

Yeah, the dearth of growth stocks, screened out by the HFEL investment 'remit' has denied any sporty performances geared to the very low market discount rates over recent years.
Then again, at least this has spared HFEL from much harm due to the uber-zealous new regulatory regime imposed in the PRC, unlike those internet stocks and other previous high fliers.

[aleman] 22/8/2021 11:38

RIO is around £52 but has just gone ex-dividend to the tune of nearly £4. BHP is nearly £22 but soon to go ex-dividend for nearly £1.50. Call it a 7% cash payment on the current capital value of these two. That means the 9% holdings in the pair will return cash of more than 0.6% of HFEL's NAV for just these two payouts. RIO's interim and special are 3.4 times last year's interim and BHP's final is 3.6 times last year's final. Share prices for these two seem to be suggesting that these can't be maintained?

[zac0_4] 22/8/2021 10:07

I assume their investment in both RIO and BHP will be on APAC exchanges. BHP share price, as an example, is 20%+ higher on Australian exchange compared to UK.

[8w] 21/8/2021 19:15

Two biggest holdings are BHP and RIO ,combined about9% of the trust. Both have been under pressure recently

[aleman] 21/8/2021 16:27

Been having a look at Covid and indices relevant to HFEL. Covid in Asia and the Far East looks to be moving in the right direction with Asia as a whole down slightly in the last week. China is down over 50% but Australia is up 2/3rds. It's quite mixed, but indices don't particularly seem to be following Covid levels so there must be other factors in play. HFEL's latest allocations were:

July 31st

Taiwan 21.59
Australia 21.07
China 17.11
South Korea 13.66
Hong Kong 11.37
Singapore 3.57
Vietnam 3.08
India 2.63
Indonesia 2.24
Thailand 1.85

The Taiwan stockmarket is down 9%+ in 5 weeks. Korea is down about 8% in two. Australia has come off recent highs slightly but is still where it started August. Shanghai is off about 3% in a month. Hong Kong is off a whopping 15% in 7 weeks. HFEL was always going to struggle against such a background, though a few shares in each nation would not necessarily follow indices there. So, if investments are not closely aligned to Covid levels, what will put an end to recent falls? I don't know. I just topped up big style last week because income levels suggest there must be considerable value there.

[tim 3] 20/8/2021 13:50

Thanks speed

[speedsgh] 20/8/2021 12:22

From the last Edison note released on 23/7/21...



"Since its launch in 2006, HFEL has paid quarterly dividends in February, May, August and November. Total dividends have increased every year, growing at a compound annual rate of 3.7% over the five years to end-FY20 and to date have always been fully covered by income, including in FY20 when COVID-19 provisions hit payouts in many areas around the world. The third interim dividend of 5.9p announced in June 2021 was a 1.7% increase on the previous two quarters. Although many of the dividends HFEL received during FY20 were based on FY19 (pre-pandemic) earnings, Kerley says income for the first half of FY21 was also ahead of the comparable period in FY20, despite a 9% decline in aggregate dividends for the Asia Pacific region in calendar 2020. The trust’s dividend receipts are heavily weighted to the second half of its financial year, but the manager says many payments so far in H221 have been ahead of analyst expectations. Option premium income in H121 was also slightly ahead of H120, making up 11.4% of total income compared with 10.7% a year earlier. The consistent record of a fully covered and growing dividend is all the more impressive given significant growth in the share base (19.4m shares issued since the start of FY20). The trust’s revenue reserve stood at £17.4m at end-H121, equivalent to 0.55x the annual dividend. Based on the current share price and the last four quarterly dividends (amounting to 23.3p), HFEL has a dividend yield of 7.2%, which continues to look highly attractive compared with most other investments."

[exel] 19/8/2021 18:46

Thanks all - for such measured & informative posts, above. I too went back up to weight, today. But one never knows in this extremely unpredictable world.

[zac0_4] 19/8/2021 16:44

Aleman- me too. Topped up earlier in the week at £3.00 and again today at £2.95. Just hope I'm doing the right thing. Only time will tell, I suppose!!

[aleman] 19/8/2021 16:07

Bought twice this week and back to a full weighting. Seems a bargain at the moment. Ok, numerous Asian countries are struggling with the Delta strain at the moment but other countries have come through it and a couple in Asia look to have peaked, including China.

[skinny] 19/8/2021 15:16

I sold in June @323p and possibly eyeing a re-entry - that November low of 284 is within sight though - decisions, decisions.

[masurenguy] 19/8/2021 14:56

Took an initial re-entry position today.

[mister md] 19/8/2021 09:39

added a few at 294p

[masurenguy] 18/8/2021 15:34

Current midprice is circa 2.2% above NAV, which is a fairly normal historical ratio. As a former holder I sold out at 338.4p in January last year and have kept HFEL on my watchlist for a re-entry opportunity because of the good yield. However, not tempted so far since the recent decline does not seem to have levelled out yet. Therefore, I'm still watching and waiting from the sidelines.

[brucie5] 18/8/2021 15:01

Gosh, through the £3 level. If this continues it will surely revisit last November's low, which would make it a dividend of over 8%.

[bareknee] 18/8/2021 14:46

Probably as important as the total reserves, the following was in the same report


Dividends

The Company has continued with its approach of paying four interim dividends in respect of each financial year. For the year ended 31 August 2020, the total dividend amounted to 23.0p per ordinary share, a 2.7% increase on the total dividend for the prior financial year and, once again, comfortably above the 12-month
inflation figure of 0.5% for the same period.

The revenue streams from the companies in which we invest on your
behalf have proved as resilient as anticipated. Accordingly, we are not
having to access the Company’s revenue reserves in order to cover the
dividend. We will in fact, as we have done in prior years, be adding a small
amount to the reserve which will remain available to smooth the dividend during times of severe economic or financial shock.

The bold is mine, not the companies.

It may go lower, but I was happy to take a medium to long term view, and add to my holding today.

[wskill] 18/8/2021 10:06

What are the divi reserves with HFEL bought a few today myself mainly on the RIO and BHP holdings.

found the reserves £17.4 million around 50% of 1 years dividend.

[melton john] 18/8/2021 10:01

I bought a few more this morning to test the water, showing as a sell at 300.7

[gateside] 17/8/2021 20:23

Recent bumper payout from RIO

Between RIO & BHP they make up almost 8% of HFEL's portfolio

[carpingtris] 17/8/2021 19:28

Bumper BHP group payout planned - should add to the Divi reserves here? :)