Strong markets and strong performance



David Smith, Fund Manager for Henderson High Income Trust, reflects on how the Trust has performed over the first half of the year and how the Trust has benefitted from strong market conditions. David also highlights the latest portfolio activity, specifically how the Trust is positioning itself more defensively.


Q: Hello and welcome to the latest video update for the Henderson High Income Trust. I'm joined by fund manager David Smith. David, thank you for joining me.

So we're coming up to the halfway point in 2019 so perhaps it'd be quite nice to reflect briefly on the first six months of the year in terms of performance and markets generally. What's your take been?

A: Well the markets have been strong globally, the equity markets, the U.K. FTSE all share is up 70% to the end of May and I think what's driven that has been a bounce back from the lows we saw in Q4. But also central banks across the globe have actually become a lot more dovish so we're probably expecting rate cuts rather than rate increases where we were thinking this time last year.

The Trust performed well, so the Trust's NAV is up 12% over that time period. Good absolute performance and good to see us outperforming the benchmark and the index as well. I think the key drivers for us within the trust have been our financial exposure. So where we own the likes of Jupiter, Intermediate Capital, Phoenix, the life insurers, these companies really benefited from those strong market conditions. But also some of the results coming out from those companies have been robust over that time period as well.

Q: And in keeping with the portfolio, has there been much activity in the second quarter of the year?

A: We've previously talked about trying to go a little bit more defensively with increasing the bond exposure. I think within the active portfolio we've also focused on trying to go a little bit more defensive and what I mean by that is buy and sell those companies whose profits aren't linked to the global economy. So one of the new additions is Sanofi, the French pharmaceutical company, so yes we're a UK equity trust but we're utilizing our ability to go overseas and we're buying a pharmaceutical company, particularly a French one.

We like the company fundamentally as well, don't get me wrong, they've got a new management team and they're very focused on cost efficiencies and improving those margins, which are a lot lower than where the competition are. But also reinvigorating some of their research and development and really focusing on the drugs they've got some core competencies on.

So actually that should help drive the top line further out. So I think shorter term we've got a good margin story, longer term I think we could potentially have a good growth story coming through. Looking at the valuation it looks pretty attractive versus the sector and the dividend is yielding at about 4.5%, that's quite attractive given we should see dividend growth to top that up as well.

Q: Now David, lastly I wanted to touch on the investment trust structure for which there are some benefits over open ended funds. For example, the ability to withhold revenue for a rainy day. So as a trust focused primarily on delivering a high income stream for shareholders, what's the approach for paying shareholders and contributing to revenue reserves?

A: Yes certainly over the last couple of years I think it's been a prudent balance between the two; focusing both on paying the dividend and trying to grow that dividend but also putting a little bit away into those revenue reserves. The objective of the trust is to provide that high level of dividend. Although not a specific objective, one of the aspirations of the board and me as manager is to try and grow that dividend into the future as long as it's sustainable into the longer term. If you look at the track record over the last six years we've actually grown the dividend around about 2.5% per annum, which is slightly above inflation over that time period.

At the same time, we've also put that money into revenue reserves as well. And actually we've grown revenue reserves up to about 9 months’ worth of dividend cover as of the end of last year. So I think we've done a good job, certainly in the medium term, to be able to balance those two and I think that really does set the company up in good stead if actually the outlook for income becomes much more tougher from here.


Net asset value (NAV): The total value of a fund's assets less its liabilities.

Dividend: A payment made by a company to its shareholders. The amount is variable, and is paid as a portion of the company’s profits.

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 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.

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Henderson High Income Trust 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 investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust 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 trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • 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 trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.
  • All or part of the trust'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.
  • 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.

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