Henderson Far East Income Trust – looking East for earnings
Finding stable income has become harder than ever as higher interest rates, inflation and recession risks continue to haunt European and US markets. As such, the managers of Henderson Far East Income believe investors should look to the East for a reliable and sustainable income.
6 minute read
A tale of two worlds
Global growth is slowing, inflation though coming down is still high by historic standards and the targets of central banks. As interest rates continue to rise in Western markets and consumers come under pressure, the risk of a recession is rising. With corporate margins, cash flows and dividends under pressure many investors have been asking the question: where can you find a secure and stable income? The answer is simple, Henderson Far East Income Trust.
Asian economies are at a different stage in the economic cycle to their western counterparts and so offer a potentially valuable element in an investment portfolio. Inflation in China and its near neighbours has risen but has not hit the painful heights seen in Europe and the United States last year. Subsequently, interest rates have also not risen as sharply and in many of the largest economies in the region – China, Japan, South Korea, and Australia for example – interest rates remain markedly lower than in the UK and are not expected to rise further.
With lower rates and lower inflation there is greater room for companies to invest, for consumers to spend and for businesses to grow. The International Monetary Fund forecasts GDP growth in the region to be about 4.6% this year – far above growth rates forecast for the US or Europe.
The decades of developments that has occurred in many East Asian economies has also created a rising middle-class, keen to both consume and to invest their savings. China is obviously the dominant economy in the region and all these trends hold true for that giant market. Having built its economy into a global export powerhouse, China’s leadership is now looking to maximise growth in its domestic economy, unleashing the spending and investment power of its citizens in their own country. This will no doubt filter into the region, as consumers travel and spend money in neighbouring countries.
Focus on income
Henderson Far East Income Trust is focussed on the potential of the region to deliver stable and secure income and at levels that significantly outperform those available in other markets. Technology has long been a pillar of Asia’s economic success and the trust includes Asia’s leading tech giants such as Taiwan Semiconductor and Samsung Electronics in its portfolio.
Expanding consumer economies in much of the region is also a boon to the financial sector which alongside technology telecoms and energy represent about two thirds of the portfolio by value.
For many of these businesses, the prospects for capital growth are significant. Capital growth is always welcome, but as the name suggests, Henderson Far East Income is focussed on income. That focus has delivered. In 2022, the Trust had a yield of 8.5% and in every year since 2018, Henderson Far East Income Trust has delivered a yield of more than 6.0%.
A new chapter for China and its neighbours
The Asia Pacific story has been one of the major themes of the global economy for more than two decades, but it is far from over as the region is entering a new phase of its development. Manufacturing exports have been the main driver of growth in the region this century and they will remain important, but alongside that aspect of the economy, domestic activity is emerging as an important factor. The Covid pandemic muted this trend for the last three years, but with lockdowns over we expect it to become ever more significant.
As the search for investment income in Europe and US markets has grown harder the attraction of Henderson Far East Income Trust has become ever clearer.
Discrete Performance Table
|Discrete year performance (%)||Share Price (total return)||NAV (total return)|
|31/03/2022 to 31/03/2023||-3.9||-8.0|
|31/03/2021 to 31/03/2022||-2.4||2.6|
|31/03/2020 to 31/03/2021||25.7||22.7|
|31/03/2019 to 31/03/2020||-15.4||-15.3|
|31/03/2018 to 31/03/2019||1.7||4.9|
Cash Flow – Cash that a company generates after allowing for day-to-day running expenses and capital expenditure. It can then use the cash to make purchases, pay dividends or reduce debt.
Past performance does not predict future returns.
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Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
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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.