London, UK, 2 December 2022
Edison issues review on Henderson International Income Trust
Henderson International Income Trust (HINT) has succeeded in achieving its dual objectives of capital gains and a high and growing dividend. Annualised NAV total return (TR) of 9.4% over the 10 years to end November 2022 is complemented by an average, inflation-beating rate of 5% per year since inception, representing a 4.2% dividend yield. HINT's focus on income and geographic diversification (see Edison's January 2022 report for details) and value means that performance has lagged the benchmark 10-year annualised TR of 10.9%. The market weakness of the past 12 months allowed the manager, Ben Lofthouse, to invest in what he perceives as well managed, resilient businesses at more attractive valuation levels. He is hopeful that these prudent investments will result in strong capital growth and healthy dividends, supporting HINT's solid TR.
HINT's focus on generating a high and growing dividend from a globally diversified portfolio ex-UK, combined with its enhanced dividend pay-out policy, may appeal to investors seeking diversification beyond the UK and rising income in the current high inflation environment. Within the enhanced dividend policy, announced in October 2021, the dividend for FY22 (the financial year ending in August) grew 15% y-o-y (preceded by 5% growth in FY21) and was fully covered by revenue income for the accounting period. The board's commitment to use reserves to maintain dividend payments, if necessary, should provide investors with confidence about future distributions. Although HINT's focus on value and diversification (including a structural underweight in the United States) means returns have lagged the benchmark, the absolute long-term performance is very robust. Over the past 12 months, the increased exposure to Asia and the consumer discretionary sector (subsequently reduced) detracted from returns. The trust's 6.8% discount to NAV, wider than historical levels (c 2.5% five-year discount) and the peer average, may offer investors an attractive entry point. There is scope for the ongoing charge to decline after the new, lower management fee structure took effect in September 2022.
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