UK Equity Income & Growth: dividend growth to drive returns in 2017

23/11/2016

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James Henderson and Laura Foll, Co-Managers of the Henderson UK Equity Income & Growth Fund, discuss what they believe is in store for investors in 2017.

What lessons have you learned from 2016?
 
• Be cautious of consensus opinion. There were two large, unexpected events this year, namely Brexit and Donald Trump’s victory in the US presidential election. Prior to both events, the majority of polling and research predicted the wrong outcome. Similarly, analysts failed to predict the strong recovery in commodity prices. This has taught us to be wary of areas where there is broad consensus, and that sometimes politics does matter!
 
• The importance of using a variety of valuation metrics (eg price-to-earnings, price-to-book) to help make investment decisions.  At times this year it was tempting to abandon valuation metrics in favour of valuing stocks relative to increasingly low yielding (and therefore more expensive) corporate and government bonds. This would have made stocks on high valuation metrics look attractive, regardless of the health of their business. This would have been a mistake.
 
What are the key themes likely to shape the markets in 2017?
 
• Higher inflation, driven by the fall in sterling, the rising national living wage and the rising oil price. In a higher inflation environment it is increasingly important to hold companies that have pricing power to pass on rising costs to customers.
 
• A focus on dividend growth. Given the low interest rate, low inflation environment in recent years, investors have often focused on yield. In an environment where bond yields and inflation are rising it will be increasingly important to focus on dividend growth, and companies capable of achieving this through growing sales and earnings.
 
How is the portfolio positioned as you move towards the new year?
 
The portfolio has a long, diverse list of stocks (around 120 holdings) and we aim to invest in companies that operate across a blend of industries and markets that do not move together. In this way the portfolio is not overly exposed or dependent on any one investment theme or sector.
 
We believe our current positioning with a significant weighting in industrials leaves us well positioned. Industrial companies have faced a number of headwinds due to weakness in many end markets such as agriculture, defence and oil & gas. Some of these headwinds are now easing, therefore industrials are more likely to be able to grow sales and earnings going forward.
 
What should investors expect from your portfolio in the coming year?
 
Investors should not expect major shifts in the portfolio. We adopt a  ‘buy and hold’ approach with an average holding period of  approximately five years. We will continue to focus on meeting companies and generating new ideas across small, medium and large companies.
 
 

Glossary
Valuation metrics: are used to gauge a company’s performance, financial health and expectations for future earnings eg. price-to-earnings (dividing the current share price by its earnings per share) and price-to-book (dividing the company's market price by its book value, the book value being the value of a company's assets on the balance sheet.)
 
Buy and hold: an investment strategy where a long-term view is taken, ie. stocks are held over a longer period of time regardless of short-term fluctuations in the market.

Past performance is not a guide to future performance. 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.


Important information

Please read the following important information regarding funds related to this article.

Henderson UK Equity Income & Growth Fund

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. 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.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

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.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.

Risk rating

Lowland Investment Company plc

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.

Past performance is not a guide to future performance. 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.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

Specific risks

  • 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

Risk rating

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