Henderson Far East Income Limited
Portfolio Managers of Henderson Far East Income Limited, Mike Kerley and Sat Duhra, deliver the 2022 Annual General Meeting presentation to shareholders. They cover the Company's performance over the last financial year, highlight factors impacting Asian markets, and outline portfolio activity over the period.
4 minute watch
Macro backdrop
Asian equities finished the month flat despite a sharp rally in global markets, with the weakness in China offsetting gains in other Asian markets. China witnessed a pick-up in COVID-19 cases along with weak property sentiment as transaction volumes remained weak. However, in general markets were supported by the fall in commodity prices such as oil and copper during the month, which dampened expectations of higher inflation, along with a more dovish US Federal Reserve (Fed) interest rate hike outlook. This supported the strong move in India, a key importer of oil, which was one of the best performing market over the month.
By sector, consumer discretionary and information technology (IT) were the strongest performers, although this did not extend to China where technology companies came under further pressure from renewed concerns around US ADR delisting and China’s deteriorating diplomatic relationship with the US. Real estate was the weakest sector having been impacted by a number of interest rate rises, which tend to be negative for asset values, but was primarily impacted by the weakness in China where property companies were very weak over the month following concerns that purchasers would stop making their mortgage payments.
Trust performance and activity
The portfolio returned 0.0% while the MSCI Asia Pacific ex Japan High Yield Index fell 0.1% and the FTSE All World Asi a Pacific ex Japan Index returned 0.0% (in sterling terms).¹
The Fund was a beneficiary of not owning Chinese property companies given the sector’s general weakness during the month. Positions in Macquarie Group and TSMC were the key positive contributors to relative performance following a rebound after a period of weakness, and both remain high conviction positions with a strong yield. The most significant detractors were all of the Trust’s Chinese holdings following the weakness in that market as Li Ning, Industrial Bank and Citic Securities were negatively impacted.
In terms of activity, we reduced the Trust’s exposure to Mediatek in Taiwan given the expectation of weaker demand for consumer electronics, and we added Bank Mandiri to the portfolio following good results and an improved outlook for Indonesia.
Outlook/Strategy
The weaker outlook for the consumer given stubbornly high inflation might create some risk for corporate earnings and the possibility of more earnings downgrades in an already volatile environment, with investors already dealing with the prospect of significantly higher interest rates and tighter liquidity from central banks. However, Asian equity valuations continue to look attractive relative to global equities in our view. Inflationary pressures also remain less pronounced in the region. We are more confident about the outlook for dividends considering the excess cash being generated and the low level of dividends paid out compared to earnings. We remain focused on domestic-orientated companies with strong cash flows and sustainable and growing dividends.

¹Source: Bloomberg as at 31st July 2022.
Glossary ExpandInflation -The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.
Liquidity – The ability to buy or sell a particular security or asset in the market. Assets that can be easily traded in the market (without causing a major price move) are referred to as ‘liquid’.
Valuation metrics – Metrics used to gauge a company’s performance, financial health, and expectations for future earnings e.g, price to earnings (P/E) ratio and return on equity (ROE).
Yield – The level of income on a security, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
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Important information
Please read the following important information regarding funds related to this article.
- The Company has significant exposure to Emerging Markets, which tend to be less stable than more established markets. These markets can be affected by local political and economic conditions as well as variances in the reliability of trading systems, buying and selling practices, and financial reporting standards.
- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
- The portfolio allows the manager to use options for efficient portfolio management. Options can be volatile and may result in a capital loss.
- Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
- This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
- Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
- All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.