Henderson Far East Income Share Discussion Threads

[speedsgh] 29/10/2021 10:42

Final Results -

Results make for a very interesting read. I would highly recommend taking the time to digest in full.

The board are evidently very aware of the relative underperformance against their peers to the extent that they "undertook a review of our investment strategy and process to discover if we were meeting shareholder expectations and living up to our mandate". Their conclusion appears to be that the strategy is for the time being out of favour as opposed to no longer fit for purpose...

"In recent years, however, while this policy has provided a high dividend yield, currently 7% plus, when combined with the capital performance has resulted in an overall outcome that has lagged our competitors whose yields are substantially lower. Our current process locks us into the value sector of the market that is not popular at present as most investors have preferred growth to income. The debate about value versus growth has been going on for a very long time. Sometimes value is preferred, sometimes growth. Rotation between these two styles will continue. When value returns to favour, our capital performance should improve. Our Fund Managers will do all they can to improve our capital performance, but the Board has directed them not to lose sight of our dividend growth preference."

with a caveat that they will continue to monitor the situation...

"So far, income investors have embraced this policy. Demand for new shares has been elevated. In the last two years we have issued 20.4m new shares and the share price has been consistently above our NAV. This outcome has given the Board confidence that the policy is meeting investor needs, but we will continue to monitor the situation as these do change over time and it is always the Board's intention to respond to our shareholder preferences."

Pleasing to see a reduction in management fees from 0.9% of net assets up to £400m and 0.75% of net assets thereafter to a flat rate of 0.75% of net assets p.a.

Small drawdown from revenue reserves to help pay increased dividend for the year and maintain AIC Next Generation of Dividend Heroes status...

"For the first time since the Company launched in 2007 the dividend distributed has not been covered by the revenue generated. The shortfall has resulted in a small drawdown of the reserves which will stand at just under a half years' worth of dividends following payment of the 4th interim dividend for the year."

Interesting comment by the fund managers on China talking about investing alongside the Chinese govt objectives rather than against them...

"These policies introduced to rein in the power of the internet companies, the protection of data and the attempts to tackle the problems of inequality, are admirable and will serve China well in the future if successful. However, the handling and timing of these announcements leave something to be desired and have caused uncertainty to the point where some investors are classing the country as un-investible. We don't share this view and realise now, more than ever, the importance of investing alongside government objectives rather than against them."

And on the recent underperformance and outlook...

"It is fair to say that the focus on yield has held back capital appreciation over the last twelve months, but we continue to believe that this is a process and strategy that can deliver attractive total returns when economic conditions allow. With record low interest rates likely to remain in place for some time and ageing populations requiring a dependable income stream, we believe that the performance of yield stocks will improve in the months and years ahead. This process has proved successful in the past and we believe it will be again in the future."

[aleman] 29/10/2021 10:30

Dividends received 2.4 times covered and earnings predicted to rise 15% suggests that, barring the distinct political risks around having half the portfolio income from China and Taiwan, dividends look likely to see some good growth over the next few years. A few minor factors conspired to hold it back this year. They might reverse a bit. The new toe-hold in India looks an interesting change. The political risk does seem to weigh quite heavily at the moment, though.

[zac0_4] 29/10/2021 09:08

For the first time since the fund was launched dividend payments during the last 12 months have not been fully covered by income generated from holdings.

[exel] 28/10/2021 23:45

Fascinating points above, thanks all! But, I'm very concerned. TNAV remains below MMV (although less so than has been the case) but with many more market shocks still waiting to emerge. China (in so many ways) has blown its own growth story, as have global supply-chain issues, and weakness in the West. Although less dependent on China than previously (and that material de-weighting tells a deeper story) the HFEL Dividend looks vulnerable - much as they'll want to maintain it. Bumpy ride expected.

[zac0_4] 28/10/2021 19:20

petewy - "Do I stay or sell?" Only you can answer that question. Personally, I don't view it as a 'growth' or 'income' choice. I simply ask myself what total return do I think I'll get over a chosen timescale. So, for me, I tend to look out over the next 12 months. The price I originally paid for the share doesn't enter into the equation. So, from today my total return is likely to be 7.5% (ish)from dividends plus I'm expecting some share price recovery to maybe £3.10 in 12 months time (no more than a guess really). In that scenario my total return, from here, over the next 12 months should be around 10.75%. That's how I look at my investments and decide on the answer to your question. Whatever you decide, good luck!

[panshanger1] 27/10/2021 18:56

BTW :Ex div tomorrow for 5.9 p Payday 26/11

[petewy] 27/10/2021 18:51

Income thanks

[gateside] 27/10/2021 18:06

If you want +7.5% income, then hold.If you want growth, then probably best look elsewhere.

[panshanger1] 27/10/2021 17:44

Are you looking for income or growth ?

[petewy] 27/10/2021 17:40

Do I stay or sell?

[masurenguy] 27/10/2021 13:17

2sporrans - I largely agree with your view except on their perception of the threat of any US agression.

speedsgh - a perceptive and sensible article.

However, I don't think that the PRC really views the USA as a military threat. The pretence that it does helps to justify increased military expenditure and to keep the top brass happy.

The US "strategic ambiguity" policy is a poker game to maintain Chinese concern that the US might intervene if they attempted a military takeover. The consequences, politically, economically and militarily would be enormous if the PRC attempted a military invasion of Taiwan. So long as the US restrains any Taiwanese moves towards sovereignty and nationhood, which they have continued to do for the past 60 odd years, then there is little for the PRC to gain by any military adventure.

If the PRC wanted to put much more additional pressure on Taiwan they could easily invade and occupy offshore islands like Quemoy (Kinmen) and the Matsu chain very easily since they are only 6 - 10 miles off the Chinese coast and effectively indefensible. There are also other unpopulated Taiwanese island that they could easily occupy. This would have minimum polical and economic repercussions but the main disincentive would be that this could sufficiently alarm the USA, Japan, South Korea and Australia and result in them establishing closer ties with Taiwan, which could also result in a formal defense pact.

Over the coming years there will be greater economic integration between the PRC and Taiwan, raising the latters trade with the PRC from circa 35% today to over 50% in 5/7 years from now, and this can ensure that maintaining the status quo remains the best option for both sides. The only real threat that I can see of a PRC invasion would be if some other serious economic disaster or internal political upheaval threatened the regime in Beijing and an invasion of Taiwan was seen as a way of distracting the population from those problems and trying to unify the country against an alleged "foreign threat" against them. The latter is very ulikely but of course nothing is impossible in an uncertain future.

[speedsgh] 27/10/2021 12:33

2sporrans - Always interesting to read views from the other side of the fence and keep an open mind. I found this particularly interesting...

[2sporrans] 27/10/2021 12:04

Masurenguy/PP/scruff

Thanks for your posts concerning the very difficult and terse co-existence of PRC and Taiwan.
Very different takes as reasoned from extremely different sets of assumptions and observations.

Fwliw, I'm strongly persuaded that neither Xi nor the Chinese generally want to recourse to military invasion of Taiwan.
Apart from the high human and material cost, the Taiwanese are, after all the same ethnic people as in adjacent NE mainland China and still with ties; the exodus of of the Kuomintang army etc being only some 7 decades ago.
Ideally, from PRC perspective the Chinese, both mainland and Taiwanese, will re-unite through a process of convergence. As long as things move gradually that way, the PRC will, collectively stick with a very patient approach.
Having said, the Taiwanese military now assesses that PRC military will have the requisite means to succeed in an armed invasion by 2025.
That implies to me that Taiwan will become ever more dependent upon very committed US allegiance/defence over the next few years.

This growing dependency can only exacerbate tensions.
The South China Sea and Chinese endeavours there, is only one related issue that may precipitate something very unfortunate.
The US weighing in with their own military on-the-ground in Taiwan is, potentially, another.

In all this, one ought to consider that it may well be that it is the Chinese and the Xi regime in particular that fears potential US aggression; Western media focuses on the threat of rising Chinese nationalism rather than the obverse.
After all, historically, the facts, going back over 150 years, well support the former perception, Chinese occupation of Tibet and excursions Mongolia way not withstanding.

Indeed, since WW2 [and devastating Japanese invasion], US military interventions include that in Korea to stem the tide of communism; the post 1953 split resulting in the irreconcilable co-existence of S and N [a truly vile fiefdom] of today.
Vietnam - A Domino Theory 'play' - with horrendous consequences.
And of course all those Middle-East/Afghan wars that went to show that although the USA, arguably, succeeded in strictly military terms, they unquestionably failed to win the peace; their attempts to graft on their own ideology resulting in utter debacles.

Imho, it may be that the USA and camp followers might do better to take a leaf out of the Chinese book and put far greater accent upon "Soft Power" to further a [relatively] benign, outcome to Far East evolution - as they see it.
But have they the attributes to work out the requisite long term stratagems and the resilience to stick with them and adapt them over the years?
I am very concerned they don't.
However, with both USA and PRC looking to become members of ASEAN, might it be it is through such conduits that at least some mutually constructive progress can be achieved for the region as a whole?

Hmmmmm....

[exel] 21/10/2021 14:58

Thanks ALL - great posts above. But don't be fooled. Many of those lumpy 'buys' (today) are in fact 'sells' - at generous pricing'. Last time I looked? Evergrande was not yet fixed. If it gets fixed, soon? then fine! But if not, this stock presumably has further to re-trace v its recent recovery.

[panshanger1] 20/10/2021 15:45

Commentary on annual report will be interesting 12/11 last year Is the dividend here sustainable at current levels

[speedsgh] 19/10/2021 14:04

Dividend Declaration -

The directors have declared the fourth interim dividend of 5.90p (five point nine zero pence) per ordinary share in respect of the year ending 31 August 2021. The dividend will be paid on 26 November 2021 to shareholders on the register on 29 October (the record date). The shares will be quoted ex-dividend on 28 October 2021.

[speedsgh] 18/10/2021 13:17

AFAICS HFEL has for the most part continued to trade at a modest premium to NAV since Covid reared its ugly head, much like it did pre-pandemic. Which suggests that investors are willing to pay the same small premium to NAV to acquire HFEL shares as they were pre-pandemic and it is therefore the underlying holdings that have been holding back performance. That should reverse over time although any sustained/material rise in interest rates might see investors less willing to pay a premium for the shares.

[aleman] 18/10/2021 12:52

Underperformance is often temporary. HFEL often indicates it has a bias to the growing consumer class in its Asian nation choices. Those same consumers have been throttled back a bit with further lockdowns while Asian manufacturing has experienced a boom supplying Western consumers who have been out in force with the help of higher vaccination rates. I suspect HFEL might do a bit better in future, relatively speaking, though I would not expect anything dramatic. I hope they stick to their guns and do not start shuffling the portflio.

[orinocor] 18/10/2021 11:47

Mike Kerley, who has run the £440million stock market-listed fund since 2007 (and more recently in conjunction with Sat Duhra), admits the trust's returns have been 'disappointing'.

'If we go back to pre-pandemic times, the trust's total returns were in line with those of its peers,' he says. 'But the underperformance of dividend yield as an investment strategy has hit the trust hard.'

The trust's shares are currently yielding close to 8 per cent, an extraordinary figure – especially when measured against its peers where yields of 4 per cent are more the norm.

[orinocor] 18/10/2021 11:45

There was a writeup in the Mail on Sunday on Asian Funds but it highlighted this one in particular

[carpingtris] 14/10/2021 19:15

Really? And your a 'premium' member?

[neilyb675] 14/10/2021 19:13

Wah you wan a fek medal