For individual investors in the UK

Henderson High Income Trust Fund Manager Commentary – August 2022

David Smith, Portfolio Manager of Henderson High Income Trust, provides an update on the Trust highlighting the key drivers of performance over the month and recent portfolio activity.

David Smith, CFA

David Smith, CFA

Portfolio Manager


22 Sep 2022
3 minute read

Macro backdrop

During August, the FTSE All Share Index fell by 1.7% as high inflation stoked fears of an economic recession in the UK.¹ July's Consumer Price Index (CPI ) rose above 10% for the first time in over 40 years and the Bank of England warned that inflation could hit 13% in October.² In response, the central bank hiked interest rates to 1.75%, the highest level since 2008. Concerns about UK economic growth and political uncertainty over the UK's next Prime Minister caused the pound to fall over 4.5% versus the US dollar during the month.¹ Sectors such as oil and gas, banks and tobacco outperformed while industrials, consumer discretionary and financial services lagged. The 10-year UK gilt yield rose significantly during the month, finishing August at 2.8% -up from 1.9% at the end of July.¹

Trust performance and activity

The Trust's net asset value (with debt at fair value) fell 2.8% during August, underperforming the FTSE All share (80%) & ML Sterling NG (20%) benchmark's return of -2.5%.¹ Disappointing performance within the equity portfolio and the negative impact of gearing were the main detractors from performance.

Within the equity portfolio, holdings in housebuilders, Persimmon and Vistry Group, detracted from returns. Fears over continued interest rate hikes by the Bank of England and their impact on housing affordability weighed on sentiment for the sector. Positions in Hilton Food Group and Cranswick were also detrimental to performance. Concerns over CO2 shortages - a gas used in both companies' operations - caused by rising energy costs put pressure on the share prices.

Elsewhere, the fund's positions in British American Tobacco and Imperial Brands aided performance, as investors sought their defensive characteristics and attractive cash flows given the uncertain economic outlook. The position in Woodside Energy also benefited performance, supported by rising gas prices and good results which included a higher than expected dividend increase.

During the month, we continued to lower gearing given the uncertain economic outlook, reducing the equity holdings in more cyclical businesses such as Anglo American and Rio Tinto. We also sold out of the position in Volvo, the European truck manufacturer. Although the company continues to be well managed, potential slowdowns in the trucking and construction markets are not fully discounting in the current valuation in our view.

HHI Aug 2022

¹Source: Bloomberg as at 31 August 2022.

²Source: UK inflation hits new 40-year high of 10.1% (cnbc.com)

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. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

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.

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.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • Some of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.
  • This Company is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental 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.
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  • The Company may use gearing as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incured by the Company can be greater than those of a Company that does not use gearing.
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